Burned by grand and audacious real estate projects,
which became financial burdens when market bubbles burst three years ago,
property developers in the Gulf are putting more emphasis on mundane but
Their motives are mainly economic, but they are
being encouraged by governments, which are trying to improve mass living
standards after this year's political unrest in the region. A chronic lack of
affordable, quality housing for growing populations was one factor behind the
"Post-Arab Spring, countries like Saudi and
Bahrain have realised that affordable housing is an issue," said Deepak
Jain, head of strategic consulting for the Middle East and North Africa at real
estate services firm Jones Lang LaSalle.
"The focus now is on building as per occupier
demand, a concept that is relatively new in the region."
Saudi Arabia has promised to spend about $130bn, or
around 30 percent of its annual economic output, on social projects such as
building new houses and creating jobs over an unspecified period. Earlier this
year, King Abdullah pledged SR250bn ($67bn) to be spent on 500,000 new homes.
Bahrain is pushing to fill a longstanding shortage
of about 50,000 affordable homes, hoping this will also mitigate some of the
discontent behind the unrest that hit the tiny island state in February and
By launching big housing projects and awarding the
contracts to developers, governments in the Gulf can influence the types of homes
being built and the pricing.
In April, for example, Abu Dhabi awarded a AED21bn
($5.7bn) contract to state-linked firms to build housing for the local population.
It has said it wants to provide "adequate and modern housing" for
citizens "to help achieve social stability".
Many property developers in the region are partly
owned by the government or, in the case of the United Arab Emirates, were
bailed out by the state after the market soured and they ran into debt two or
three years ago. Aldar Properties, the biggest developer in Abu Dhabi, was
given a $5.2 billion bailout by the state-owned Mubadala fund.
Even without the encouragement of governments,
developers in the Gulf see good reasons to build more modest homes.
In Dubai, home to the world's tallest tower and
luxurious waterfront villas on a man-made, palm-shaped island created by
developer Nakheel , companies are grappling with leftover inventory from a
building boom that ran until 2008 and left many grand properties on the market
that owners are desperate to sell or rent. That has encouraged developers to
shift focus from villas and tall towers to mid-income housing.
"In the UAE, most interest has been driven by
speculator demand. The speculator market represented more than half the real
estate market. They all have left now," said Jain.
An average two-bedroom apartment now costs over AED1m
($272,0000) in a middle-class neighbourhood of Dubai, after prices plunged over
50 percent. An apartment of similar size would cost well over $400,000 in
Aldar Properties, builder of Abu Dhabi's Formula One
race track and related development on Yas Island which includes a marina and
yacht club, has said its focus is now mid-income housing.
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Bahrain may be the most dramatic example of the
shift in the Gulf's real estate market. Many commercial buildings in Manama - completed
before the 2008 property bust in order to house foreign companies in the city,
a Gulf financial hub - are unoccupied. A July report by property firm Cluttons
estimated only about 60-70 percent of office space in Bahrain was used.
The residential property market never recovered
after the 2008 bust, and any hope of a revival of interest in prime property
among regional and foreign investors was wiped out by months of political
unrest that swept the country this year.
"Lots of companies in financial services who
were thinking of setting up base in Bahrain have either halted their plans or
moved to Dubai," said Shakeel Sarwar, head of asset management at
Bahrain-based Securities and Investment Co.
Home rents have plunged by about 50 percent in some
areas of Bahrain, and selling prices have dropped by similar margins.
"Investor sentiment in the kingdom has waned,
with those who are active only seeking distressed assets which are backed by
strong market fundamentals," said Kristian Syson, Bahrain-based head of
valuations at Cluttons.
Like Dubai, Bahrain has a massive housing project
under construction on a string of artificial islands along its coast: a $6bn
development called Durrat Al Bahrain.
But the islands, some shaped like fish, mainly
feature mid-income housing, in stark contrast to Nakheel's Dubai Palm project,
which offered multi-million dollar properties to European football stars and
"Nakheel did not realise its market...we know
whom we are building for," Durrat Al Bahrain Chief Executive Jassim Al
Jowder told Reuters.
"Developers in Bahrain now know that the
shortage is in affordable, medium-size housing. We are all targeting this
Suleiman, a driver in Bahrain who dreams of a owning
a house someday, said: "Who needs tall towers?..We need a good home."
He added that governments in the region were now more keen to keep citizens
happy: "I think maybe the government will listen to us now."
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