Developers in Dubai are adopting a new strategy to capture an untapped market share. They are increasingly offering smaller unit types -studios and one-bedrooms - and smaller sizes of each unit type to overcome the relatively high cost of land and deliver more affordable properties. This makes the units affordable to a segment of the population like small and young families who were earlier priced out of the Dubai housing market.
"We have seen a change in the trend where the sizes have been reduced so that the end product aligns with what the current market is demanding. This makes the units more affordable to the buyers/end-users, but not necessarily impact the developers' costs. By reducing the size to fit market demand, the number of units in any project goes up, which means more kitchens, more bathrooms, more walls, more car parks, which increases the costs for developers," says Ranjeet Chavan, managing partner, Gulf Sotheby's International Realty.
End-users are also attracted to these units as they represent an opportunity for some to get onto the property ladder while living in a top location.
"From an investment point of view, they are a fantastic option - the prices are lower, so it's more attractive and they still offer very good rental yields. There are obviously larger units in the market and some buyers will prefer that, but those units: a) aren't for everyone, and b) aren't affordable to everyone," explains Lewis Allsopp, CEO, Allsopp & Allsopp.
Most private sector developers and even the larger ones are deploying this strategy. "There is no specific developer type doing this, we can see this happening at various locations by different developers but it is not a constant. When a buyer walks into a property, he likes to see a lot of space and good views. This is just the natural behaviour of anyone buying real estate to live or for investment," observes Dounia Fadi, CEO, MD Properties.
Industry stakeholders claim these will not be cookie-cutter apartments. Faced with an increased demand for a relatively new market segment, developers are trying to find the best approach to cost and design affordable properties. To improve space utilisation, some developers are adding modular space-saving furniture that changes functions.
Adrian Popica, general manager, House Hunters Real Estate Brokers, says: "Developers have access to the latest technology and are able to include in the affordable projects features such as smart home systems and sustainable community planning. Most developers aim to provide affordable communities with all the facilities and amenities needed by residents."
Allsopp insists these are still very good apartments. "It's not like people are being offered shoe boxes to make a home in. They will be well-built, of good quality and in good locations," he reiterates.
However, developers find it hard to retain the affordability of units after investors have picked it up at launch. "If small units remain affordable, then that is a good thing. When investors come pick the cheaper smaller units for rental income, that pushes prices up, hurting the little guy. No one anywhere in the world can regulate that or put restrictions on that, but we need to somehow come up with a way that affordable properties remain within an affordable bracket," points out Dounia.
Market observers cite how smaller affordable properties are the norm in other global cities as well.
"It is not a strategy, but a norm if you take a closer look at unit sizes in comparable cities such as New York, Paris, London, Tokyo and Mumbai, Dubai has been generous in sizing the units initially but with the market maturing and rise in demand for small and affordable housing, this is probably the best move for developers to capture increased market share. The other reason that acts as a catalyst and has a direct impact on unit sizes is the availability of land in prime locations, which is always limited," says Chavan.
A McKinsey Global Institute study talks about the best strategies to achieve affordable housing - finding land in the right location, reducing construction costs through value engineering, industrial approaches and innovation, increasing operations and maintenance efficiency and reducing financing costs for buyers and developers.
"Looking at the way local developers have approached the affordable housing segment, we can notice a lot of similarities and it's safe to say that they studied and implemented strategies that worked in other parts of the world," adds Adrian.
"The more congested a city, the smaller the units and higher the price. Dubai still has a lot of land available to develop. Scoring big profits from a development should not and cannot be the only driver. Developers must take into account cost of living versus average wages, etc," concludes Dounia.