Affordable housing takes centre stage in Middle East property market (page 1 of 2)

With frustration over the lack of affordable housing seen as one of the leading causes of the Arab Spring, governments in the region are stepping up their efforts to address this issue. But a new report issued this week by NCB Capital analysing Saudi Arabia's real estate strategy highlights the challenges that governments across the region face with regard to low-cost housing.

"Using a definition of affordability where no more than 30%-35% of median income is spent on housing, we find that a lack of supply of affordable homes is a significant concern in the Middle East as a whole as well as in Saudi Arabia," said Farouk Miah, Acting Head of Equity Research at NCB Capital. "On one hand there is an oversupply in the market for luxury and upscale residential units, but a shortfall of affordable housing units where demand is high."

With approximately 58% of the Saudi population under the age of 25, along with the decline in average household size, there will be a continuously rising demand for affordable entry-level housing as these individuals leave to set up their own homes, the report added.

The main barrier to providing more affordable housing in the kingdom is the high cost of land, the report noted, while other key issues are construction costs, lack of supply of land which can be developed, bureaucracy and limited financing options.

Pan-regional challenge

The challenges that Saudi Arabia faces with regard to affordable housing are mirrored throughout much of the Middle East and North Africa. According to Jones Lang Lasalle, there is a shortage of more than 3.5 million affordable homes across the Mena region, with demand expected to continue to outstrip supply for at least the next five years.

Egypt has the largest shortfall (1.5 million low-cost units needed) in the region, followed by Iraq (1 million) and Morocco (600,000). In the Gulf, the problem is most pronounced in Saudi Arabia, but to a lesser degree there are also shortages in Bahrain, the UAE and Oman.

Recognising the social and economic impact of the lack of affordable housing, many Mena countries have announced plans to address the issue, including Egypt, which has pledged to build one million low-income residential units across 32 cities. Iraq has made a similar commitment, while Saudi Arabia has pledged to spend $67bn to build 500,000 affordable housing units across the kingdom.

While governments in the region struggle to find ways to address the lack of affordable housing, many developers are seeing it as an opportunity after property prices have fallen sharply in many markets due to an oversupply of luxury housing.

"There are significant opportunities for developers who can overcome the obstacles of this market," Alex Gemici, CEO of Greenstone Equity Partners tells AMEinfo.com. "Taking KSA as an example, the largest construction and development companies have annual capacities of 5,000 units or so against an annual demand of hundreds and thousands of units. This leaves a substantially untapped market with built-in demand."

Perhaps one of the more unlikely developers looking to capitalise on this growing market is Dubai-based Emaar, which is known for building luxury projects such as the Burj Khalifa. The property company recently announced that it has launched a division that will use economies of scale to build "value housing" developments to help meet the rising demand in this property segment.

The projects will focus on the region's "emerging middle class", said the developer, which noted that the number of families in the region with annual incomes of more than $27,224 is expected to double to 28 million by 2025.