OUR HOUSE, IN THE MIDDLE -INCOME STREET

Dubai 2017 | CONSTRUCTION & REAL ESTATE | FOCUS

Dubai is renowned for its chart-topping growth rates in the real estate sector and eye-watering prices. But as the economy matures, a burgeoning middle class is looking for the more affordable options, a trend that the market is reacting to.

With the growing population, a maturating of the market, and perhaps an over served-premium segment, there has been a blurring of lines of the black and white split between Dubai's luxury and middle-income renters. The Emirate still has a lot of spending power; its middle-income segment consists of those earning USD5,440 per month, or families earning USD54,439 per annum. Products and payment schemes are being developed for those earning USD2,722 per month and below, but until now the majority of the activity is among higher earners. The high level of competition and the years of penny pinching following drops in oil prices has meant that developers and tenants alike are looking outside of the premium segment. CBRE's managing director, Nick Maclean, told TBY; “Tenants are prepared to move for better value accommodation, which is being made manifest in the migration of tenants to the outskirts of the city. Consequently, rents will continue to decline until we get a level of integration that matches the supply of new stock coming into the market over the next few years.”

Dubai's landlords still enjoy good returns on their investment, with the market having sustained double-digit growth for several years, and tenants have grown weary of landlords sitting back and collecting their annual 10% rent increase. The risk of a price bubble has been mitigated by the introduction of the Regulatory Real Estate Authority (RERA). The Dubai government was keen to avoid a repeat of housing price bubble that hammered the economy over 2008-09. This was partly achieved through issuing Decree No.43: Determining Rent Increases for Real Property in the Emirate of Dubai, whereby landlords were given caps on the annual rent measured against the average unit price for similar units across Dubai.

The tenant has essentially won a price war; they have shown the developers and agents that they are willing to move out of the more lucrative areas in search of better value. Dubai Marina registered a 12% decrease in rental yields over 2016, as did Nakheel's Palm Jumeirah, proof that tenants had looked for other options before deciding to pay USD16,332 annually per bedroom.

The drive to cater for the middle-income market could also be the government and developer's rebuttal to the 1 million commuters who come into the city each day, many of whom enjoy 40% cheaper rates in the neighboring Emirate of Sharjah. This is echoed by the 3-5% rise in rents across areas outside of the city such as International City, Silicon Oasis, Discovery Gardens, and Dubai Sports City. These areas outside the city saw growth, despite rents broadly falling across Dubai.

The changing price dynamic could also be a mirroring of the wider economic ambitions of the government. The Emirate's leadership have been trying to encourage entrepreneurs as generators of innovation. As well as offering new visa categories, there is a wider move to build studios, or one-bed apartments, to attract entrepreneurs who do not have large accommodation needs. MAG Group has been particularly active in this space, and is one of several developers that have looked at the middle-income segment as a key driver for growing their business. The group's Meydan project will consist of: 40% studios; 30% one bedroom, 20% two bedrooms; and 10% townhouses. With prices not exceeding USD122,500 to 136,100 for studios; USD176,900 to 190,500 for one-beds; USD258,600 to 272,200 for two-beds, and townhouses from USD408,300 to 517,200. From premium developer Sobha, Meydan is situated a few kilometers further from the city, whose Heartland development has four-bed luxury villas starting at a staggering USD4.1 million.

The middle income, or affordable segment, has been the amalgamation of various forces both organic and reactionary, but perhaps it has added balance to the market as the tenant has more choice, while the developer has a new market to tap.