Experts have warned that rising rents and a lack of affordable housing in the Emirates as a whole, but especially in Dubai, could be leading to a situation that inhabitants of London, Hong Kong and Berlin would recognize: Dubai housing is too expensive for Dubai people.
That’s the forecast from CBRE Middle East, anyway. The property consultant firm’s latest report shows rents in Dubai rising by an average of 22% in the last 12 months, and the sharpest rise in the most affordable sector of the market: apartment rents rose 29% year-on-year, while villa rents showed only 15% increase.
Mat Green, Head of Research and Consultancy at CBRE Middle East, said that rentals had increased by an average of 45% over the last two years, and that there’s an increasing ‘donut’ or commuter dormitory effect, whereby people who work in Dubai but can’t afford the rents there move to Sharjah and the Northern Emirates instead; good news for their housing markets, bad news for Dubai’s workers.
John Stevens, of real estate services company Asteco, said that the rise in rents threatened to empty Dubai of workers as a ‘flight to affordability’ kicked in. His predictions matched what’ already begun to happen, that workers from Dubai would seek homes in Sharjah and the Northern Emirates.
Meanwhile, the CBRE said the strongest sub-markets for apartments were Dubai Sports City, Downtown Dubai, JBR, International City and Dubai Silicon Oasis, all prestige projects, economic hubs or both. The best performing markets for villas were Springs and Al Warqa.
Mr. Green points out that, ‘Dubai’s residential sector continues to experience growing demand from both occupation and transactional sources,’ referring to purchases by investors as well as those seeking to make their homes in the thriving Emirate city. ‘Despite recent regulatory changes,’ Mr. Green went on, ‘both rental and sales prices continue to rise, albeit at a marginally slower rate than was recorded during the previous quarter.’
CBRE’s report acknowledged that there was an increase in supply on the way as residential projects that are underway come to fruition, but that supply could be expected to exceed demand in the future, because demand had continued to rise.
‘During 2014, close to 17, 000 new units are expected to be completed with the majority of these set to be delivered in secondary location such as Dubailand, Jumeirah Village Circle and Silicon Oasis. Over the next four years roughly 65, 000 new units are penned for completion, with 83% of these being apartments,’ Mr. Green elaborated.
According to CBRE, growth is expected to continue through the rest of this year, but it’s expected to be at lower levels than previously seen, partly because of Dubai’s attempts to restrain the market through new regulations but mostly, in Mr. Green’s view, a result of the increasing importance of affordability to the Dubai market as rents begin to bump up against the upper limit of people’s ability to pay.
And those 65,000 new units aren’t going to be enough either. According to research by urban design consultancy Placemaking, Dubai needs 500,000 new homes over the next 6 years to keep up with demand. That’s significantly higher than the number that can be expected to come on the market; at current rates the next 6 years will see 97,500 units come on the market: less than a fifth of the number Placemaking calls necessary.
Placemaker’s founder, Nadine Bitar, called for a high level, multi agency government committee, similar to the one called into existence for the Dubai smart city concept, to deal with the housing shortage, which she predicted would get worse as rents rose and insufficient affordable housing was built.