In the wake of the real estate crash, middle-income housing offers better returns to developers.

In the wake of the real estate crash, middle-income housing offers better returns to developers.

« Prev Next »

1

2

E-mail Article

Printer Friendly

Share Article

Back to basics

Abu Dhabi’s second-largest developer, Sorouh Real Estate, revealed in January that it was planning an affordable housing project in the emirate. And Al Qudra Real Estate has already announced plans to adjust its portfolio to cater for the middle-income segment of the market as well as high-end investors.

In Dubai, Arabtec Construction has been contracted by the government’s Mohammed Bin Rashid Housing Establishment to build 2,290 villas across the emirate. The $817m scheme is aimed at supplying affordable housing units for UAE nationals.
Burt Hill is working on several masterplans for projects in the region, Krasinski says, branded under the concept of ‘housing for all’.

“This notion provides for a range of unit sizes within a given development, allowing for the provision of accommodation for a variety of income levels,” says Krasinski. “Developers are becoming more open to this approach, because it allows their products to be more diversified.”

Bahraini developer Diyar Al Muharraq is expected to launch its first phase of affordable housing later this year, as part of its mixed-use development on the coast of Muharraq in Bahrain. A large part of the development will comprise of housing for the middle-income demographic.

However, a population expanding at 2.5 percent each year and a current undersupply of housing means that the most urgent requirement for cheap accommodation in the Gulf is in the Kingdom of Saudi Arabia. Some 70 percent of Saudi nationals are under the age of 30, and just 35 percent of families are home owners, according to the research by UK-based The Architect’s Journal.

Figures from the Saudi government’s housing forecast for this year show demand for apartments is double the expected demand for villas. In Riyadh, 16,170 extra apartments, or self-contained apartments within a villa, are required in 2009, in addition to 8,396 villas.

In response to this surging demand, work is progressing on a number of large property developments in the Kingdom. Dubai developer Limitless is building the $12bn Al Wasl project north of Riyadh, which will accommodate 200,000 people in 55,000 homes, in addition to providing offices, mosques and health and educational facilities and more than 300 hectares of open space. And the UAE’s Emaar Properties is developing the vast $100bn King Abdullah Economic City (KAEC), which will provide 260,000 apartments and 56,000 villas upon its completion in 2025.

“In the region we see a broader trend of what we call real homes for real people — focusing on demand, focusing back on accommodation that people need to run an economy,” Blair Hagkull, managing director for the MENA region at Jones Lang LaSalle, told a conference in Abu Dhabi three weeks ago.

The industry veteran defines affordable housing as accommodation which costs around 30 to 35 percent of an individual’s monthly income.

“In most parts of the Gulf in the last number of years that percentage was higher,” he says. “In periods of high demand, modest is average — what’s been sold is luxurious. So what we’re starting to see with prices going down is that affordability happens.”

So what happens to the affordable accommodation segment if demand in the GCC for high-end real estate returns, forcing prices upwards again?

Burt Hill’s Krasinski believes revisiting the “top-heavy patterns of the 2002 to 2008 period” is not feasible.

“On the other hand, if we are talking about diversification, then yes, there will always be some room for high-end and premium level products,” he continues. “The central question is one of balance. When deciding on the positioning of any development it is important to take market studies seriously before bolting for the peak.”

He points out that most architects are happy to engage in affordable housing projects and accept the lower margins that the work involves.

“If the market finally moves in the direction of affordability after several years of ignoring the issue, rest assured the architects will follow,” he adds.

Comments 1-1 of 1