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A meltdown in the Gulf’s real estate sector is pushing developers to consider building cheaper accommodation — and meeting the region’s shortfall in affordable housing stock. Tom Arnold reports.
A silver lining of a slump in the gulf’s premium real estate market has been a sharper focus on addressing the pressing shortage of affordable housing. Signs are emerging that developers are gradually switching their attention from high-end residential developments, featuring high rise luxury penthouses or beachside villas, to projects with smaller, less expensive dwellings.
The property sector slowdown has exposed an oversupply of premium real estate developments, priced out of the financial reach of many ordinary GCC nationals and expatriates.
Conversely, the need for middle to low-income housing has never been greater.
“At the moment new projects tend to swing between luxury housing and worker accommodation, and there’s nothing in between,” says Kevin Leahy, director of Broadway Malyan Architects, which has an office in Abu Dhabi.
“It’s a two-tier society and there’s a huge amount to do.”
One million homes are required over the next five years in Saudi Arabia, the Gulf’s largest country and biggest economy, to meet a growing population that is likely to double to 50 million in 28 years, according to a report released in May.
Meanwhile, the lack of cheap accommodation in Abu Dhabi has been acknowledged by John Bullough, CEO of Aldar Properties, the emirate’s largest property developer, which recently launched a $2.6bn housing project specifically for middle-income UAE nationals.
“There’s an awful lot of high-end residential property and an undersupply of affordable [property], so it’s going to be a question of matching that,” he told a conference in Abu Dhabi three weeks ago.
Until this year, Aldar and other developers were clamouring to outdo each other by unveiling a glut of luxury residential real estate projects. In return, developers were assured healthy profits thanks to six years of soaring sale and rental prices.
At their peak, prices in Dubai, where the market was most highly leveraged, reached an eye-watering $2,858 per square foot for a luxury Armani residence at the Burj Dubai last year. In Abu Dhabi, rental prices shot up between 80 percent and 160 percent in the 12 months until December 2008, according to property consultants Asteco.
That was until the real estate sector hit the buffers at the turn of the year after the full force of the global financial crisis rocked the Gulf. A slide in property prices, combined with saturation in demand for top-end property and a new era of tighter lending by banks, means developers are starting to turn their attention to more realistic developments.
“The disappearance of easy credit was the one influence strong enough to make the overly exuberant developers reconsider their positions on which projects are worth doing,” says Ivar Krasinski, design director and principal in the Dubai office of US architect Burt Hill.
At the same time, government planners pushing for progress in addressing a shortfall in cheap accommodation are spurring developers into action.
Aldar’s Al Falah project will provide around 5,000 homes for middle-income UAE families, as part of an Abu Dhabi government housing initiative. Launched under the government’s Abu Dhabi 2030 directive, the masterplanned community will feature five villages with their own schools and mosques surrounding the town centre, which will act as the focal point of the development, accommodating civic buildings, a retail mall and hospital.
“It’s all about prioritisation and focus — focus on delivering the projects that Abu Dhabi needs,” says Bullough. “We and a number of other property developers in Abu Dhabi are focusing increasingly on working with the government on projects. This is very important in underpinning and sustaining the health of the property market in Abu Dhabi going forward.”
