“A white house with blue shutters and a room overlooking the river…and a big ole porch wrapped around the whole house.” These lines by The Notebook’s protagonist represent the dream of homebuyers worldwide.
A spacious abode with room for everyone has long been ingrained in the collective consciousness. However, realizing such dreams has taken a jolt for millennials, impacted by economic realities and market dynamics. The dream of owning a home has shattered due to skyrocketing prices and inflation.
“Although there is a lack of comprehensive data on the millennial demographic in the Middle East, we can safely assume that most of the population, at least in the GCC, is made of millennials, as these are predominantly expat-friendly countries. It is vital to understand the kind of homes millennials might want to invest in,” says Matthew Myers, Assistant Professor in Real Estate at Heriot-Watt University Dubai.
Analysts monitoring the current real estate landscape note striking similarities between the housing conditions that marked the 1980s for the baby boomer generation and those prevailing today.
Echoing historical patterns, inflation was a driving force behind escalating home prices. Fast forward to the present, and it’s the millennial generation grappling with a housing market reminiscent of their parent’s era.
Like their predecessors, millennials refuse to let unfavorable conditions hinder their pursuit of homeownership.
GROWING INTEREST AND DIVERSIFIED INVENTORY
“We are seeing growing interest from millennial buyers, based on our data,” says Ari Kesisoglu, President of Property Finder.
Despite bearing the brunt of student loan debts, rising living costs, and fluctuating job markets, millennials seem keen to buy property in the region.
“There has also been a renewed interest in buying property post-pandemic,” says Myers. In fact, in the GCC, a report by CBRE Middle East showcased that the total value of planned real estate projects is $1.36 trillion. Saudi Arabia accounted for 64.5% of this total, equating to around $877 billion worth of projects. This is followed by the UAE, whose $293 billion of projects accounts for 21.6% of the total.
One of the major changes in most cities is the demand for luxury projects and their increasing availability. “Leading developers collaborate with fashion and lifestyle luxury brands to elevate living spaces and appeal to millennials,” Myers adds.
The growing interest in home buying can also be attributed to several other factors. According to Kesisoglu, the financial scope has diversified over time with many profitable opportunities available – for ownership or rentals – there is scope for many types of property seekers in the region.
“Due to several flexible payment processes in place, homeownership is no longer a luxury for those above a certain income bracket,” he says. Today, property buying is made more accessible and resourceful, giving foreign buyers equal benefits to look out for in terms of long-term residency and higher returns.
“These factors vary across the Middle East, with some countries experiencing a surge while others are undergoing massive transformation. This momentum makes the region unique, with positive possibilities in the present but equally interesting projects in the pipeline, promising diversified investment options,” Kesisoglu adds.
A ROOM OF ONE’S OWN
While there’s no magic ball to foresee the houses piquing millennial buyers, experts note several factors guide their choices.
“Millennials may look to invest in homes for them to move into and not necessarily as a long-term investment, which means appeal will also play an important role. And if it is for investment purposes, fast returns through selling or renting out quickly will be key,” says Myers.
Without a doubt, he says that urban accessibility and affordability will also play a considerable role in millennials looking to invest in their homes. Other factors millennial homebuyers seek out are sustainability, and integration of smart home technology integration.
GRAPPLING WITH INFLATION
Various factors contribute to investment decisions that influence the real estate market.
According to Myers, economic conditions, such as employment rates and income levels, impact the affordability and demand for properties. Demographic trends, such as population growth and age, are crucial in determining the types and locations of properties in demand. He adds that interest rates affect borrowing costs and mortgage availability, further influencing market dynamics.
Some experts note that millennials may give up dreams of living in large houses due to financial constraints, steering them toward smaller housing options.
So, how affordable are they? “Well, that depends on the community and different parts of the region,” says Kesisoglu. For example, a studio apartment in Discovery Gardens would cost around $108,905 for approximately 500 square feet. However, this could be very different in another community with other facilities and amenities.
“Overall, we see a wide range of options across different sizes – studios, one, two, or three BHKs, villas, townhouses, and more, says Kesisoglu.
According to Steven Leckie, Senior Off Plan & Investment Consultant, haus & haus Real Estate, there’s been an interest in “reasonable to high quality” properties. These houses range from one-bedroom apartments at around $190,585 to $326,717 and two-bedroom apartments from $435,623 to $544,528.
With increasing inflation rates, prospective homebuyers face the necessity of a higher income to contend with the housing market’s challenges, marked by surging mortgage interest rates and escalating home prices. The impact of inflation on those with lower incomes would be daunting, leaving them grappling with the unavailability of affordable housing options and effectively pushing them out of the market.
Adding to the challenges, salaries still need to catch up with the inflationary pressures driving the increased home purchasing costs.
Despite challenges, experts note that millennials entering the housing market for the first time, particularly those experiencing exceptionally high rental rates, are more willing to accept elevated prices to secure a property globally.
Meanwhile, as more foreigners flock to the Middle East and invest in homes, time will tell how this will impact the homebuying choices and pressures facing local and expat millennials in the region.