Developers Should Think Beyond Payment Plans.
In Dubai’s property market, affordability remains a key topic that cannot be ignored. For many potential buyers, affordability became a major concern again due to inflation in 2023. Housing has not been this unaffordable since 2007, especially for those worried about paying their mortgages.
Globally, the issue has been that supply has struggled to keep up with demand. Even with higher mortgage rates in the past two years, home prices have remained high in most markets, except for luxury properties, where prices have slightly dropped.
How Dubai Differs?
In the UAE, the story has been different. From 2015 to 2020, when there wasn’t an oversupply, experts worried about the limited availability of new homes. Developers responded by introducing very generous payment plans to attract buyers.
After the pandemic, as property prices surged, developers ramped up new construction projects. Three years later, payment plans have become even more attractive, influenced by the “buy now, pay later” trend in real estate.
Across markets, asset prices tend to adjust quickly to risk and demand. Yet, in housing, changes are slower. Despite this, demand for homes in the UAE remains strong. Developers have also taken on the role of financiers, making flexible cash flow the new measure of affordability. As a result, the gap between the prices of off-plan properties and ready homes has grown. By 2024, off-plan sales made up nearly 75% of total sales, compared to 45% in 2019.
Refurbished Homes vs. Off-Plan Properties:
In most financial markets, asset prices quickly react to economic changes. In real estate, however, adjustments take time because selling a property often takes months or years. To compete, owners and investors of older homes have started upgrading their properties.
Even so, the price gap between older homes and off-plan properties continues to grow. Median prices for ready homes have begun to drop, with off-plan properties following the same trend. Developers’ attempts to create artificial urgency, such as announcing upcoming price hikes, have not been very effective.
Rather than repeating past cycles of steep rises and falls, the market appears to be on a steadier path. Many buyers are now looking for properties on the outskirts of Dubai, where they can find better deals. Prices in these areas have adjusted faster, partly due to partnerships between landlords and new developers. Strict rules from master developers on land use and project timelines have also played a role.
Focus Shifts to Monthly Payments:
For most buyers, the focus has shifted to monthly instalments rather than traditional valuation methods like price-to-rent or price-to-income ratios. These ratios are at their lowest since 2013, according to the latest IMF report on the UAE.
Distressed Properties Gain Attention:
As institutional investors grow cautious, there is more interest in distressed properties. The Emirates Auction market has also seen an increase in activity, driven by buyers who cannot meet their mortgage obligations.
For many, a house is a home. For economists, it is also an income-generating asset, reflected in inflation data through measures like owners’ equivalent rent. Housing and overall asset ownership remain crucial to long-term policies in any country.
What’s Next for Affordability?
The UAE is making progress, with privatizations in capital markets and a booming real estate sector. However, property valuations are still important. The heavy focus on off-plan properties suggests that a market correction could happen, bringing prices closer to average levels.
Government policies, like the smart rental index, may also play a role in encouraging affordability. Developers might need to lower prices to meet these changes. Regardless of the approach, affordability will be the central issue for both developers and buyers in 2025.
