Decoding millennial potential in UAE real estate
A sizable section of the millennial population will soon be turning 40, an age at which some experts predict they are most likely to become inclined to purchase property. On the whole, surveys have found that millennials are somewhat less concerned with many of the financial and life goals that their immediate predecessors – Generation X – had. Research conducted in 2017 indicated that, millennials in the UAE were spending between 30 to 50% of their paycheck on indulgences – including travel, entertainment and dining out(1), at the time. Naturally, this translates into inadequate savings for down payments. A tendency to prioritize financial flexibility further undermines long established correlations between age and home ownership, with the demographic largely being known to favour renting over owning.
In the Middle East and North Africa (MENA) region, approximately 60% of the population is below the age of 30. Looking specifically at the UAE, millennials constitute a very sizable 36% of the population. Unlike, for instance, the US property market, where accumulated student loans and low savings rates limit the impact of this demographic on home buyer numbers, millennials in the UAE are beginning to take advantage of the current lows in property prices, as well as the many innovative options to finance their purchase, on offer. However, measures that address their concerns, and developments that specifically target the demographic, could result in millennials making far more purchases than they already do, in the UAE real estate market.
The Role of technology
Millennials display a well-documented reliance on tech-based solutions for day-to-day activities like commuting, shopping, social interactions, food delivery, planning and organizing. These preferences are evident in the channels they are likely to use for house hunting as well. Prospective millennial home buyers in the UAE tend to rely on digital classified marketplaces such as Zillow, Property Finder, OLX and the like. According to one estimate, 99% of millennials used online searches, when looking for a property to buy and 58% managed to find a property of their choice using this approach(2). This behaviour has implications that redefine the traditional roles of real estate brokers and agents, who now realize that online listings are far more significant in targeting this segment. Millennials are key to the rise of online property portals in the UAE, which has reduced – or at least redefined – broker involvement, by facilitating direct interaction between owners and buyers.
The secondary impact of technology, in the context of real estate preferences displayed by millennials, is their propensity for smart homes, accompanied by design considerations like highly efficient energy consumption, low carbon emissions and other sustainability related features. The majority of millennial buyers are in the market for small and compact homes, either due to a minimalist disposition, financial constraints, or both. A crucial role will have to be played by the developer community in the UAE, if the market is to cater to millennial-specific demands successfully and unlock currently dormant potential in this market segment.
The positives are falling into place
The rationale which can be used to attract greater millennial interest in purchasing properties can be summed through the means of comparison with the cost of long term renting. A recent news article in a UAE daily notes that renting a property in Dubai, which would cost AED 1.76 million to buy with a 20 year mortgage plan, would cost over AED 2.16 million over an equivalent period(3). With attractive mortgage plans becoming increasingly mainstream and available in Dubai, millennials are beginning to realize that long-term renting makes far less sense. Of course, it will take more than targeted developments and innovative repayment plans to facilitate millennial interest in purchasing property to its fullest extent.
The onus is also on governing bodies to help create conditions that are conducive to an increased number of millennials making property purchases. To that end, policy makers in Dubai have undertaken some very helpful initiatives. Dubai Land Department (DLD) has ratified rent-to-own schemes, where rents are apportioned towards property purchase, and tokenization, where minimal capital can fetch fractional ownership, besides launching initiatives like ‘Manzili’, an initiative enabling buyers to explore the options they can feasibly consider, when considering properties to purchase.
While millennials are earning significantly higher than many preceding generations, increase in cost of living, high down payments and unappealing mortgage rates have proven counterproductive to their home buying aspirations. Real estate inflation has surpassed the wage growth rate, leading to affordability concerns among millennial buyers. Financial institutions, regulatory bodies and developers should – within a transparent and public-spirited framework – come together to alleviate challenges and encourage millennials to purchase property. The millennial potential, if unlocked, can render a macroeconomic impact, accompanied by real estate inventory reduction and balance between demand and supply. The UAE population is rising and, with the diversification of the economy, a large number of millennials are likely to add to Dubai’s expatriate population as well, in the coming years. Addressing the segment’s specific preferences and concerns could play a crucial role in the future growth of the UAE real estate sector.