Worker housing projects in the United Arab Emirates (UAE) are expected to draw increased interest from investors after the government issued a decree last week requiring companies with more than 50 employees to provide free accommodation for those earning less than 2,000 dirhams ($544) per month, industry experts told Zawya.
The decree, announced by the Ministry of Human Resources and Emiratisation on July 18, will come into force on December 2016. The ministry had issued a directive two years ago stating that companies with more than 500 employees were required to supply free housing for low-wage staff, and the new decree reduces the minimum threshold to 50 employees.
"We have numerous mega infrastructure projects under construction linked to the government program ahead of Expo 2020 and demand for beds in key worker accommodation facilities will continue to rise," Faisal Durrani, head of research at real estate firm Cluttons, told Zawya in a phone interview.
"I think it is important it is being addressed that there will be sufficient, appropriate and acceptable levels of accommodation for these workers, who are a key part of the economy," he added.
The value of construction in the pipeline in Dubai is forecast to reach $390.7 billion this year, according to consultancy firm Deloitte. Another report released in June by Emirates NBD bank showed that $6.6 billion worth of new construction contracts were awarded in Dubai in the first quarter of this year, the second highest figure since the peak of 2008.
Attractive yields
As a result, Durrani said, labour accommodation camps are proving to be popular among local investors, providing yields of up to 10 percent in some cases. The new law is likely to spur interest among overseas investment funds as well.
"On the investment front... we have seen these worker accommodation camps traded on the market and the yields have been attractive... With Brexit and the global economy, global funds will be looking to diversify their portfolios and probably trying to seek out interesting new asset classes and this is likely to emerge as one of those," he added.
Even before last week's announcement, Durrani said data showed that demand was already high for worker accommodation and the lack of supply had seen rents increase from around 250 dirhams per month per worker five years ago to around 500 dirhams per month per worker at present.
David Godchaux, chief executive officer of CORE, said the new regulation could also have a downward impact on prices as large employers will seek bulk discount deals for their employees.
"We may see new players enter the staff accommodation market due to this regulation and perception of increased supply. This could put negative pressure on pricing if people think there is more supply. However, increased supply is only a perception," he said.
A search on Dubai-based classified website Dubizzle showed there are currently 16 listings advertising plots of land licensed for the construction of labour camps, with some asking prices as high as 55 million dirhams.
There are also a further 110 listings offering existing and newly completed labour camps for sale to investors, with some adverts claiming a return on investment of up to 18 percent a year.
One advert listed by Driven Properties is offering a new labour camp with an asking price of 125 million dirhams. Located near Dubai Investment Park, which is not far from the Expo 2020 site, it consists of 552 rooms, which can accommodate four workers per room. A Driven Properties spokesperson told Zawya the firm has seen increased interest in this and other labour camps it has for sale since the new decree was announced.
"The amount of construction projects is going to drive up demand for these worker accommodation facilities," Durrani said, adding that the northern emirates, such as Ajman and Sharjah, were likely to see increased interest as costs are lower compared to Dubai and Abu Dhabi.