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 unrest.
“Post-Arab Spring,
countries like Saudi and Bahrain have realized 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 $130 billion, 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, the
Kingdom pledged SR250 billion ($67 billion) 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 March.
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 an AED21 billion ($5.7 billion) 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 UAE,
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 AED1 million ($272,0000) in a middle-class
neighborhood of Dubai, after prices plunged over 50 percent. An apartment of
similar size would cost well over $400,000 in London.
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.
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 $6 billion 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 celebrities.
“Nakheel did not realize
its market...we know whom we are building for,” Durrat Al-Bahrain Chief
Executive Jassim Al-Jowder said.
“Developers in Bahrain
now know that the shortage is in affordable, medium-size housing. We are all
targeting this market now.”
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.”
