Economic Incentives are Required to Support Developers in the Region to Overcome Housing Challenges

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Economic Incentives are Required to Support Developers in the Region to Overcome Housing Challenges 11 - Dec - 2014

Kuwait Financial Centre “Markaz” recently published its report on the GCC Affordable Housing industry. In this report, Markaz analyzes the state of GCC Affordable Housing industry in terms of sector demand drivers, demand estimates for each member state, key challenges & supply side bottlenecks, and policy prescriptions. The report also provides information on various government initiatives in the region and upcoming trends in the sector.

Unlike traditional housing that doesn’t make distinction between income disparities, affordable housing is defined as housing that is reasonably adequate in standard and location for lower and middle income households, and does not cost so much that a household is not able to meet other basic needs on a sustainable basis. In other words, housing deemed affordable by those with a median household income in a country. However, the GCC affordable housing demand is one of the key issues, which so far has not received its due share of concern from the policymakers. There is a pressing need to look at the issue of affordable housing shortages in the GCC region and the factors inherent in the system leading to such a chronic shortage.
The GCC population is estimated to have reached 49.3 million in 2013 and poised to grow at a higher rate than developed and developing countries. This, combined with a growing workforce in the region, puts severe pressure on matching supply and demand for affordable housing in GCC. The GCC region has become one of the most urbanized areas in the world with over 75 percent of its population living in cities. The unemployment levels across the countries remain on a higher side. The level of unemployment in Bahrain and Oman are to the tune of 15% of the working population, while in Saudi Arabia it stands at 10.50%. The GDP per capita of GCC nations are comparable to that of developed nations, and fare much better as compared to emerging market economies like China, India, and Brazil.  The high GDP per capita of the nations is also translating into rising demand for housing, including affordable housing. The commitment of GCC economies towards diversification to usher in future growth of the region, will eventually create more demand for low cost housing, as the people from lowest income groups find themselves able to afford a house of their own.
The demand for affordable housing is estimated to be high across all the member states of GCC. The total demand for affordable housing in the Kingdom of Saudi Arabia is estimated for more than 3 Million in 2014 with approximately 82% of this demand pertaining to urban areas. In Qatar, almost the entire demand for affordable housing is expected to remain concentrated in the urban region.

The ever widening gap between the demand and supply of affordable housing in GCC countries is pressing the governments in the region to have an urgent look at the issue. The GCC affordable housing industry faces many challenges, such as tough credit markets terms, volatility in the prices of building materials, and the shrinking margins of developers. Moreover, the supply side bottlenecks in the form of lack of housing finance, delays in approvals, inefficient urban planning system, high-cost construction priority (such as villas & high-end apartments), and long waiting lines of government housing schemes pose additional pressure on the sector to deliver.

However, the recent initiatives by the governments are encouraging, where governments are coming forward to provide land in good locations and at reasonable prices. GCC governments also provide incentives to developers, as well as formation of Urban Development Bodies in the region. There has been a higher acceptance of PPP in the GCC, in recent years, due to the enhanced ability of the private sector to execute housing projects on a large-scale. But prospective developers need to feel confident of generating stable income flows from low-cost housing schemes. Consolidation of industry players through mergers and acquisitions will improve economies of scale, and serve to address cost and margin issues in low cost housing projects. Also, it will lead to easier access to liquidity for the developers than most competitors worldwide, and enable effective and quick implementation of the projects.
The issue of affordable housing in GCC is serious and needs to be dealt with on an urgent basis. An effective plan of action needs to focus towards integrating economic, social and cultural issues along with physical planning and development by the adoption of a national housing policy that considers providing accommodation for future population growth in large cities and encourages their decentralization towards other organized suburban centers.
About Kuwait Financial Centre “Markaz”
Kuwait Financial Centre K.P.S.C “Markaz”, established in 1974, is one of the leading asset management and investment banking institutions in the Arabian Gulf Region with total assets under management (AUM) of over KD 1.12 billion as of Sep 30th, 2014 (USD 3.89 billion). Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997.
For further information, please contact:
Osama Al Musallam
Senior Communications Officer
Media & Communications Department
Kuwait Financial Centre S.A.K. "Markaz"
Tel: +965 2224 8000 ext 1819
Fax: +965 2241 4499