Whether you’re new to the city, have spent a few years here, or have been in the emirate for the proverbial forever, rental levels in Dubai impact most of the city’s residents.
Whether you’re a tenant or landlord, the subject is close to everyone’s heart in the city. And while most residents would maintain that their rentals are going up faster than their salaries, there is indeed a ceiling to what an individual or household can afford to pay as rent.
While most of us would (or should) be broadly aware of that limit, there is indeed a globally accepted formula to arrive at that number.
It is said that a household should spend no more than 30 per cent of its annual income on rent. Spending 30 per cent of your yearly income on rent is widely believed to be an affordable amount, leaving enough money for all your other expenses.
A new report by Colliers International, a commercial real estate services provider, elaborates on this – what Dubai residents can afford to pay in rents keeping in mind average salary levels.
According to the report, half (50 per cent) of Dubai households earn between Dh9,000 to Dh15,000 per month. Now, with this salary, how much can one put aside as rent so that people have a decent amount left for other important expenses?
The report titled ‘Addressing the Housing Gap’ maintains that based on this amount (the salary level quoted above), residents can afford to spend between Dh32,500 and Dh54,000 per annum as rent or mortgage payments as per international standards. This works out to Dh2,700 per month for those earning at the lower end of the average salary band (Dh9,000 per month) in Dubai.
However, a quick scan of the property classifieds websites will show that there is very little, if anything at all, available in that price-range.
Going by the current availability in the real estate market, there is an affordability gap that currently exists in the Dubai housing market, and residents in this income bracket are limited to rent studios or one bedroom units in certain areas including International City, Deira, Al Qusais and Al Nahda.
The report states there is a mismatch between the demand for and supply of appropriate mid-market property, highlighting the social and economic benefit of creating a diverse real estate market that meets the needs of all segments of society.
“When we talk about affordable housing in Dubai, we are not referring to low-income housing, but rather housing that is affordable for a household in relation to its income. What this means in the Dubai market is mid-market properties that are suitable for young working families or professionals,” says Ian Albert, Regional Director at Colliers International.
“Owing to the recent growth in rental and sales prices in Dubai, this market segment has chosen to live in neighbouring emirates such as Sharjah and Ajman, where greater options are available to them,” he says.
“This is not only a missed opportunity for Dubai developers who should be looking to capture this sizeable market by creating affordable communities that cater to its needs, but it also directly affects the economy as productivity levels are lowered when a large percentage of the workforce suffers from a long commute,” Albert adds.
“Although the rate of growth in the sales market has slowed, the average 2 or 3 bedroom unit in Dubai is still beyond the reach of most working families. With home ownership no longer an option, these families have been pushed towards the rental market where prices remain high,” he continues.
“This represents significant challenges for Dubai. As the cost of living and raising a family becomes untenable for your average family, at best they will look to a neighbouring emirate for accommodation and schooling, and at worst they will look to more attractive, affordable countries in the Gulf or further afield,” he notes.
The latter, however, doesn’t seem to be the case with a booming Dubai economy creating a large number of new jobs that are witnessing a huge inflow of additional residents in the emirate, thus raising demand levels.
Nevertheless, even though there is a current shortage for affordable housing, developers are trying to target this segment.
Recently, an associate company of Emaar Properties, Dawahi Development, announced that it would be launching an affordable housing project in the UAE. It noted that it will develop ‘value housing’ projects within full-service community developments to cater to this segment of people.