Tens of thousands of luxury projects were on display at a premier global property show in Dubai on Monday, but missing from the glittering mock-ups and pipeline of home dreams being rolled out were more affordable housing projects for the Middle East’s large and burgeoning population of young and aspiring home owners.
Property analysts say oil-exporting countries in the Gulf are facing an immediate need to create more affordable housing, especially as the price of living rises.
Once awash in oil revenue, Arab governments in the Gulf are racing to try and create new sources of income. To offset the impact of lower oil prices on state revenues, governments have lifted subsidies on food and energy and are rolling out a value-added taxation system.
The construction sector, though, has been among the hardest-hit.
In Saudi Arabia, for example, the government has not being paying contractors on time. This has affected payments to subcontractors and delayed the completion of projects, including government-backed affordable housing units.
Major construction firms like Saudi Oger and the Saudi Binladin Group have faced major downsizing, thousands of layoffs and protests by disgruntled workers, including several highly-publicized incidences in which low-wage construction workers primarily from South Asia complained they had not been paid their salaries in months.
“The biggest challenge in Saudi Arabia is actually delivering the product,” said Craig Plumb, head of research for the Middle East and Africa at investment company Jones Lang LaSalle (JLL).
“There’s a lot of announced projects… but they don’t have the contractors, they don’t have the quality builders to actually deliver on time and on cost and that’s actually probably been made slightly worse over the past year or so because a lot of the contractors have had to withdraw from the market,” he said.
Plumb was speaking at Dubai’s Cityscape real estate event, where developers from across the Middle East unveiled their projects — many still off-plan — and pitched to investors wanting to grow their portfolios.
Developer Damac, for example, announced its luxury villas designed by Just Cavalli. Others showed off high-rise towers with two and three bedroom apartments starting at well over half-a-million dollars and still to be handed over at the earliest by 2020.
According to Faisal Durrani, head of research at property consultancy Cluttons, the challenge is that there is still no clear definition by governments in the Gulf for what constitutes affordable housing. People are often paying half of their salaries or more on rent, instead of the target benchmark of around 30 percent.
“People usually look at accommodation as the first place to make a saving, and as it stands we haven’t had a single government across the region step in and define what affordable housing actually means,” Durrani said on the sidelines of Cityscape.
Plumb of JLL said the price of an affordable two-bedroom apartment is more commonly the price of a studio in Abu Dhabi, for example. The newer, lower-priced projects that are being promised are also not typically in prime locations, but in undeveloped desert areas that are inaccessible to mass transportation systems.
In Saudi Arabia, where half of the population is under 25 years-old, the kingdom is racing to create more jobs and more accessible housing for young couples. The Saudi government has previously acknowledged a gap of between 500,000 to 1 million affordable homes on the market.
If the issue is not addressed by governments across the Gulf, the gap in affordable housing could spark social unrest and lead to political instability.
Durrani said it’s an “exceptionally urgent” issue.
“We run the risk of creating a housing market that’s inaccessible to the next generation of aspiring home owners,” he said.