Luxury LivingJune 11, 20153 min read

Affordability Becomes a Central Question

Rising costs have made home ownership harder for many middle-income residents. Why affordability matters for the market and what is being done.

David Thompson

Chief Economist

PhD from London School of Economics. David's macroeconomic forecasts have guided institutional investors through three market cycles in the Gulf region.

Dubai's rapid price growth in 2013 and 2014 made homes less affordable for many middle-income residents. Even with prices moderating in 2015, affordability has become one of the most important questions for the market's future.

Why affordability matters

Residents: teachers, nurses, engineers and many others need homes they can afford.
Economy: high housing costs can discourage talent from staying.
Stability: a market supported by a broad base of buyers is more resilient.

What affects affordability

Prices, rents, service charges, school fees and the cost of living all contribute. Mortgage caps also require larger deposits, which can be a barrier for first-time buyers.

What is being done

Developers are launching more mid-market projects in communities such as Dubai South, Town Square and Jumeirah Village. Payment plans help spread costs.

Advice for buyers

Buyers should consider the total cost of ownership, including service charges and maintenance, and compare it with rent. Areas slightly further from the centre often offer better value.

Implications for investors

Affordable homes with good transport and amenities tend to have strong rental demand and higher yields.

A simple affordability test

A practical rule of thumb for buyers is to keep total housing costs, including mortgage repayments, service charges and maintenance, at a comfortable share of household income, leaving room for school fees, savings and emergencies. Buyers should also test their budget against higher interest rates and a period without income. For many families in Dubai, the comparison with renting is helpful: if ownership costs are similar to rent and the family plans to stay for several years, buying may make sense. If ownership costs are much higher, renting may be wiser for now. These simple checks help buyers avoid taking on commitments that become stressful if circumstances change.