Affordable property is set to be the next battleground for developers as wealthy Gulf states struggle to close a chronic housing shortfall for their populations, a report said Sunday.
Developers are placing more emphasis on midmarket projects in a bid to tap into multibillion-dollar state spending plans, opening up a potentially lucrative revenue stream for debt –hit firms, real estate consultants Jones Lang LaSalle (JLS) said
“We think that this is the greatest opportunity that the development industry has at the moment,” Craig Plumb, head of research, MENA at Jones Lang LaSalle, told Arabian Business.
“Across the region there is a shortage. Because governments want to do something about it we would be expecting a lot more Gulf developers to be active in this sector of the market.”
The Middle East and North Africa has an estimated affordable housing shortfall of 3.5 million with nearly half in Egypt. High land prices coupled with the cost of infrastructure, limited home finance to low-income households and poor financial returns have all contributed to the region’s severe shortfall in midmarket housing, the report said.
Iraq has the second largest shortfall of affordable housing (1 million) in the region followed by Morocco (600,000), said JLS. Saudi Arabia, the wealthiest Gulf state, has the greatest need in the Gulf compared to 40,000 homes in Bahrain, 20,000 in the UAE and 15,000 in Oman.
Several Gulf states have pledged to ramp up spending on housing in the wake of the Arab Spring revolutions, in a bid to secure quality housing for their growing populations.
Saudi Arabia has promised to spend $130bn on social projects such as building new houses and creating jobs, while King Abdullah in March pledged to spend $67bn on 500,000 new homes.
Bahrain and Egypt are also pushing to meet the shortfall following widespread unrest in the Gulf Arab state and an uprising that topped former Egyptian president Hosni Mubarak in March.
Despite the potential for developers, it is still too early to determine the impact these spending packages will have on the battered real estate industry, said Plumb.
“I think those packages identify the problem and say the governments of Saudi, Egypt and other markets have recognised that this is a problem. They have put forward statements to say that they are going to deliver affordable housing but there is a lot of detail that hasn’t been put into place so it’s not easy to see how they are going to do it, the jury is still out,” he said.
JLL warned that Arab governments need to encourage greater use of public private partnerships to close the housing gap. Five years ago, Morocco offered over 3,800 hectares of land to developers at reduced prices in return for the firms agreeing to sell flats for below 140,000 Moroccan dirhams on one third of the land.
Turkey has also set up similar agreements with private developers.
“This has proved to be a successful method of delivering mass market housing that could be adopted and applied in other markets across MENA where the government has control of large areas of land,” the report said.
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