Dubai on course to outstrip pricey London’s record for building apartments
Dubai is on course to absorb more new apartments than London over the next two years, as luxury “ghost towers” threaten to haunt developers in both cities, analysts say.
Brokers warn that the pair are developing luxury units far beyond the reach of average earners.
In London, the average home costs more than £470,000 ($663,000), which is 12 times more than the average salary of just over £39,000 ($55,000).
In Dubai, the average annual income is 72,000 dirhams ($19,600), according to property consultancy Phidar Advisory, whereas average apartment prices in the city are just over 2 million dirhams (nearly $550,000).
The disparity between average salaries and average homes in Dubai is even greater than in London.
The UK capital is expected to see about 50,000 new units (apartments) completed over the next two years, according to Cluttons — slightly less than Dubai, where JLL estimates that around 34,000 apartments could be delivered this year, followed by a further 28,000 in 2019.
But new affordable housing is woefully scarce in both cities. “That area of the market is completely untapped and remains a huge area of opportunity as there is nobody at the moment who is targeting that sector of the population,” Faisal Durrani, the head of research at the Cluttons property consultancy, told Arab News.
“The issue we have in Dubai is there are 80,000 units due to complete in the next three years — but the vast majority of that stock is geared to the luxury end of the spectrum, which means we might have a mismatch between demand and supply,” said Durrani.
He believes that the “mismatch” will likely lead to upward pressure on prices in more affordable locations, but “at the top end of the market we may see softening persist.”
The top-end of the Dubai market could record price drops of as much as 15 percent this year, according to Jesse Downs, managing director of Dubai-based property consultancy firm Phidar Advisory.
While high-end apartments are struggling to shift, some developments described as “affordable” are still far from being accessible to average homebuyers.
“When you look at the average income in Dubai, it’s actually about 6,000 dirhams (per month), which is about $2,000. So these middle-income housing projects are not what the average resident in Dubai needs,” said Downs.
In London, the over-building of luxury apartments has been the result of developers being “very restricted with the number of units they can bring forward and the price at which they can sell them,” added Durrani. “They kind of have their arm twisted to build high-end apartments just so they can turn a profit.”
“Build it and they will come” has come to define luxury property development in both cities. But the question now facing property companies in Dubai and London is whether they can afford to continue seeking luxury buyers at the expense of middle income demand.