High land prices crimp plans for low-cost homes

Plot prices that are rising faster than house prices seen hurting GCC drive for affordable housing
High land prices crimp plans for low-cost homes
Less than 40 percent of Saudi nationals own a home
By Claire Ferris-Lay
Wed 14 Dec 2011 07:52 AM

The GCC’s rising land prices are hurting government drives
to tackle chronic affordable housing shortfalls and deterring developers from
building low-cost homes,
real estate analysts said.

Gulf countries
are facing a severe shortage of low-cost housing for their growing populations. But the high cost of plots coupled
with the lack of utilities and infrastructure in areas ringfenced for social
housing have made it financially impractical for developers to cover their costs.

“The
land costs are themselves are a major deterrent and have pushed up the pricing
to levels where developers can’t make any money out of developing affordable
housing,” said Craig Plumb, head of research for the MENA region at Jones Lang
LaSalle.

“There
are a number of constraints and land is clearly one of those but so is the cost
of servicing the land. A lot of the sites… tend to be remote from the
established urban area so servicing them with power and roads can significantly
add to the land cost.”

The
Middle East and North Africa has an estimated affordable housing shortfall of
3.5 million with nearly half in Egypt, Jones Lang LaSalle said in September.

Saudi
Arabia has the largest shortfall in the Gulf of 400,000 homes followed by
40,000 homes in Bahrain, 20,000 in the UAE and 15,000 in Oman, according to
property consultant.

The
problem is most acute in Saudi Arabia, where less than 40 percent of nationals
own homes.

Imad
Damrah, country manager at Saudi-based real estate consultancy Colliers, said
land in the kingdom is increasing up to 15 percent annually. In some areas of
Riyadh, the cost of land constitutes 50 percent of the price of a villa,
according to NCB Capital.

Many
developers have been forced to utilise urban land but are then struggling to
create sustainable living communities, said Damrah.

“You can
go a bit far from the urban areas to avoid the land price issue but the problem
is they struggle with building proper communities that match with the needs of
this segment.” 

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 has pledged to spend $130bn on social projects such as
building low-cost housing 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.

Public
private partnerships, like those already trialed in Morocco and Turkey, could
help resolve the problem, said Plumb.

“The
government is allowing developers to build affordable housing on government land.
The developer doesn’t pay for the land in cash, they pay for it by providing a
certain amount of government housing. I think it’s likely to be a model that
could be looked at in the GCC.”

Emaar
Properties, developer of the world’s tallest building, in November said it was
in talks with several UAE emirates to roll out affordable housing schemes.
Chairman Mohamed Alabbar told Arabian Business he sees opportunity for
properties in Dubai at a price point of around AED500,000 ($136,000).

“We're talking
to a few emirates. I'm going to focus on Dubai to start with,” he said. “We are
talking about [property] of maybe AED550,000 for someone with an income level
of around AED12,000 a month.”

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