Affordable housing options for first-time buyers

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Initially, real estate developments in cities like Dubai and Abu Dhabi were primarily focused on luxury and high-income groups. However, since 2014-15, there has been a sudden rise of affordable housing project launches due to a decline in the demand for luxury properties and a sudden increase in the demand for affordable homes. In March 2017, the Dubai Government approved a low-income housing policy with the aim of providing housing units to low-income working class and also renovate some old areas of Dubai. Since the government is taking steps to boost affordable housing development by incentivizing the developers in various ways, there are many affordable housing options for first-time homebuyers in Dubai. As a result of this focus, the southern districts of Dubai – where the majority of the affordable developments have been initiated and started witnessing a growth in the population of working-class professionals.

Low-Income (Affordable) Housing Policy

This policy will first classify all the low-income workers in Dubai into Emiratis and Non-Emiratis. Expats will also be included in the policy. Further, the government will consider the income level of the family, place of residence, and public benefits and then draw a comparison with the requirements of the family and the challenges faced by them. The policy also aims to build a cooperative understanding with the real estate developers for providing affordable housing units for low-income families as well as revamp certain old areas of the city.

In the period between 2012 and 2014, there was a sudden rise in rents across most residential areas in Dubai. This had led to a migration of the mid and lower-income working population to the outskirts of the city or the Northern Emirates.

Currently, due to affordable developments in areas like Dubai South, IMPZ, Dubai Sports City, Jumeirah Village Circle, Dubailand, Studio City, and Al Furjan, many experts believe that there might be a reverse migration from places like Ajman, Sharjah, etc. to Dubai. This will eventually lead to a sharp fall in rents in these cities. For that matter, some landlords in these cities have already started offering monthly payments and rent-free periods in an attempt to retain their existing tenants.

With thousands of working-class people commuting from cities like Ajman and Sharjah to Dubai every day, a shift to the southern areas of Dubai would mean lesser traffic and travel times. This invariably would result in lower costs (lesser fuels and vehicle maintenance costs), better health (lesser time spent driving), and more time at home leading to an overall improvement in the quality of life.

Further, the Dubai Metro is planning for an extension connecting the Nakheel Harbor and the Tower Station to the Expo 2020. This might encourage low-income workers to explore affordable housing options in areas like Dubailand and DIP with an easy access to the city.

The Change is HERE

The Dubai Civic body has allocated more than 100 hectares of land for affordable housing projects in areas like Al Qouz 3, Muhaisnah 4, and Al Qouz 4. These developments would offer housing units to more than 50,000 people from the low-income segment. The government has also included a voluntary system for developers to set aside at least 15 percent of units for the low-income segment.

In most economies, a house is considered to be affordable if the individual spends not more than 30 percent on his housing needs (rent or mortgage). However, most homes developed in Dubai had a starting price of around Dh 500,000 – certainly not in the affordable range. This might change soon.

Developers also faced multiple issues in constructing affordable houses – the primary concern being the purchase price of land.

Banks also need to step up to this segment. Currently, the Loan-to-Value (LTV) ratio is around 75 percent. In simple words, this means that the buyer needs to arrange 25 percent of the property price before receiving an approval for his mortgage. To bring things into perspective, if a buyer plans to purchase a property worth Dh 400,000, then he needs to save Dh 100,000 as down payment to be able to afford the house.

Also Read: Why Dubai Real Estate?

First-Time home buyers in Dubai

In a study to determine the best countries for first-time homebuyers based on data from the Hay’s Group Global Salary Forecast and Global Property Guide, the UAE ranked number 1. With the correction in real estate prices, attractive interest rates, and the availability of affordable housing units makes Dubai a great option for first-time homebuyers.

Tips for first-time homebuyers:

  • Research well before narrowing down the area where you want to buy your first house.
  • Talk to a property consultant who specializes in that area.
  • For capital appreciation – look for an off-plan property. However, if you want to move in from a rental apartment, then you might want to consider a ready unit.
  • Take all costs into consideration before applying for a mortgage. Apart from the 25 percent down payment, you also need to factor in transfer fees, commissions, etc.

Also Read: What makes a good Real estate investor?

Summing Up

With the government focusing on the affordable housing segment, buying an affordable home is possible, especially for first-time homebuyers. As the low-income housing policy takes root, there is expected to be a slew of affordable housing options for first-time homebuyers and low-income families in the coming years. So if you have been planning to purchase your first home, this is probably a great time to start looking for options. Good Luck!

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