Affordable housing is a government-driven segment in Dubai. Subsidised housing is exclusively for Emiratis, and private developers eschew the low-margin segment in favour of mid- to high-end residential projects. However, market dynamics are changing on the back of Dubai’s successful Expo 2020 bid. With over 270,000 new jobs expected to support event infrastructure and development projects, demand for affordable housing is set to rise dramatically. “As a large proportion of the new workforce will be low-skilled, the likelihood is that demand will focus on affordable housing,” said Khawar Khan, research manager at Knight Frank Dubai. Given that over 90% of new jobs are forecast to be created from 2018-21, most affordable housing projects are likely to be launched in 2016 and 2017, ensuring that completion coincides with the spike in demand.

Until Expo 2020 demand begins to affect the market, Dubai developers will remain focused on the high end. Any growth in affordable housing is likely be driven by the government and aimed at Dubai’s citizens.

MRHE: Mohammed Bin Rashid Housing Establishment (MRHE) was constituted to this end in 2006 as a centralised government department with responsibility for the administration of affordable housing solutions (interest-free loans and land grants) for low- and medium-income nationals. In 2013 the MRHE had a Dh6bn ($1.6bn) portfolio with a budget of around Dh1bn ($272m) and a year-on-year increase in government funding allocations approaching Dh80m ($22m).

Dubai citizens in the Dh7000-70,000 ($1900-19,000) income bracket are eligible for interest-free loans of Dh750,000 ($204,000) over a period that varies based on their income. In 2012, about 60% of MRHE clients were in the lower-middle bracket of Dh7000-20,000 ($1900-5400) and approximately 25% were below Dh7000 ($1900), according to Mohammad Al Merri, assistant chief executive at the MRHE. Land is granted to the MRHE for development and distribution by Dubai Municipality’s Planning Department as per requirements determined by the number of applicants.

Ongoing projects include a six-stage complex of 1240 houses in Al Barsha, and developments concentrated in Oud Al Muteena and Hatta. Five new housing projects, including almost 800 villas and a complex of apartment buildings, are being tendered to consultants and projected for turnkey delivery within two years. To ease the long waiting list of Emiratis in need of housing, the MRHE also aims to offer services such as temporary housing and subsidised rent in the future.

Private Partners

 Other MRHE innovations include outsourcing financing and zero-interest loans to commercial banks, including Abu Dhabi Commercial Bank, Emirates NBD and Dubai Islamic Bank (DIB). This allows the MRHE to serve double the number of people on its budget of Dh1bn ($272m), freeing it to focus on strategy and planning, rather than credit and collection. Under the DIB partnership, the bank will offer UAE nationals financing up to 100% of the property’s value to Dh2m ($544,000), with a tenure of up to 25 years, and profit rates starting from 3.99% per annum. “The public sector is closing the gap between lower-income nationals and financial solutions by providing services working with partner bank representatives,” Sami Gargash, CEO of the MRHE, told OBG.

The MRHE has also conducted studies aimed at increased engagement with real estate entities, and noted that developers’ offers are consistently too high. “We give the villa as per the market price, but the developer charges around 50% more because they also consider the price of the land,” said Burhan Abdul Rahman Al Habbai, assistant CEO of the MRHE Engineering Sector. “It is better for our clients to keep costs down by limiting private partnerships.” Bahrain Bay’s CEO, Robert Lee, who has previously worked on major Dubai developments Dubai Marina, Palm Jumeirah and Emirates Living, agrees, suggesting that the low profit margins in affordable housing under the current arrangement precludes the involvement of private developers. “If you want affordable housing you have to be gifted land from the government with infrastructure to the plot.”