Analysis: Home comforts

The public/private sectors need to work together on affordable housing

The GCC with its young and fast-growing population is in desperate need of housing.
The GCC with its young and fast-growing population is in desperate need of housing.

The private and public sectors need to work together to meet affordable housing demand across the region. Hannah Raven reports.

Every day, 30,000 households across the world start their search for affordable housing. By the end of 2015, there will be 11mn households globally in need of low-cost accommodation.

These figures were revealed by Sangeeth Ram, principal of consultancy McKinsey & Co in the UAE at an affordable housing panel debate hosted as part of the recent Global Real Estate Summit held in Dubai.

“Humanity needs to find a way to house the citizens of these cities affordably – there are no two ways about it,” said Ram, who moderated a panel debate that also included the GCC MD of the Affordable Housing Institute, Maya Sabah Shocair, the chairman of Signature Growth Capital Partners, Pannkaj Agrrawal, Omar El Hitamy, CEO at Himasprop and the general manager of Bahrain’s Eskan Bank, Dr Khalid Abdulla.

The issue is a hot topic for many GCC countries, most of which have young and fast-growing populations.
Ram said that many developers fail to get involved in the sector as a result of three main fears: that there is no land for affordable housing; that affordable housing is economically unfeasible; and that buying houses is too risky for low-income households.

To dispel those “misconceptions”, he said housing programmes must be “reimagined”.

Panellist Maya Sabah Shocair, GCC MD of Affordable Housing Institute, UAE, agrees the first step is to secure land, but from whom?

“Governments across the world, including in this region, are big land owners,” she said. “They could offer land for a significant development which also had an affordable housing component.”

This is already working in places such as Turkey and Morocco. “We need to see more of that,” she said. In some countries, the public sector is already working with the private sector on such projects.

Bahrain’s Ministry of Housing has recently signed a $551.7mn public-private partnership (PPP) agreement with real estate and infrastructure development company, Naseej, to build more than 4,000 affordable homes. It is the first privately-financed affordable housing development in the region.

“PPP initiatives are our attempt to release private land,” said panellist Dr Khalid Abdulla, general manager of Eskan Bank, Bahrain.

He advised governments to keep models simple to minimise and misunderstanding.

“I think there is a lot of very good potential for both of these targets to be achieved with a well-balanced approach.” Providing these homes could also prove to be socially profitable.

“Governments needs to see the real benefit of creating lower-cost housing – especially in Bahrain,” said Harry Goodson-Wickes, head of Cluttons, Bahrain.

“It’s been a major political issue that led to a lot of the disenchantment within the local community that there wasn’t enough housing.

“Bahrain definitely has seen the need to address that and it is starting to unlock a lot of the land for use for affordable housing.”

But the correct location is crucial if projects are to be successful. Even if land is available, it does not necessarily lend itself to affordable housing if the surrounding infrastructure is lacking.

Ram put to the panel the notion that communities built outside urban areas risked becoming “ghost towns or ghettoes” – such as some of those outside Egypt’s major cities.

Panellist Omar El Hitamy, CEO at Himasprop and a former CEO of Orascom Housing Communities, which built a huge low-cost housing city in Egypt, agreed.

“[Land] needs to be far enough [from city centres] not to be so expensive, and close enough to areas of job creation,” said El Hitamy.

“The notion of infrastructure – of course it has to be there for success. It will help to create a community, and not just housing.”

Building communities too far from city centres could mean households become geographically limited in terms of employment.

“It’s a healthy mix to have rich and low-income living along each other,” said Dr Abdulla. “Being among more high-income commun-ities gives them the chance to create jobs.” So, once appropriate land is secured, how can developers be enticed?

“To encourage private sector participation you need something to counter balance the economic downfall of developing affordable housing,” said Shocair.

For example, governments could commit to buying units and providing tenants prior to development. And in the UK and Ireland, mandates require new-build residential blocks to include a percentage of social housing.

If this is not fulfilled, they hand over a ‘damage payment’ which is channelled back into social housing. But Dr Abdulla believes the burgeoning need for low-cost homes means developers should be more confident in terms of profit, regardless of additional incentives.

“Affordable housing is more profitable than the average high-rise, for which there is no demand,” he said.
He says profits can range from 12- 15%. “That is pretty high by any standard.”

He believes increasing populations mean investors should consider affordable home communities a safe and lucrative bet.

“You have real demand for it and almost, you can consider demand infinite,” he said.

But El Hitamay casts a warning over Abdulla’s confidence. He says investors need to understand the difference between “effective demand” and “need”.

“Effective demand entails that money is in the pockets of people,” he explained.

“In my experiences as a private developer, this means that you need to put money in the pockets of people through finance.”

He suggested that those already in a position to buy affordable housing are offered pre-secured mortgages prior to investment.

“The way I see it is that this is a volume business, just like commodity. It’s not your typical real estate,” he said.

“Untapping this requires this particular arrangement of finance and efficiency. Once you have secured the volume, you can invest without limits.”

And different countries’ views on what constitutes affordable housing must be taken into consideration.

For example, in the UAE, staff accomm-odation is provided to the lowest-income workers, so the affordable section of the market is already taken up by the employers. And the government subsidises homes for nationals meaning there is little demand from Emiratis, but this is not to be said of other countries in the region.

“In Bahrain, Saudi and Oman, that’s not the expat marketplace,” said Steve Morgan, Cluttons Middle East chief executive.

“It’s the indigenous population where young people are coming from families that have had very large families.”
However it is addressed, the social housing issue is once that needs to be tackled. Saudi Arabia alone needs up to 1.3mn new homes by 2020 in order to meet demand for housing, with its population forecasted to grow from 30mn in 2013 to over 37mn by 2020.

The Saudi Government is attempting to meet demand, pledging $270bn to a programme to deliver more than 110,000 land plots by the end of 2015.

It seems the owners of the GCC’s vast swathes of land are beginning to realise the need to release it in equitable deals to allow developers to begin to consider affordable housing projects as investible.

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