Burned by grand and audacious real estate projects, which became financial burdens when market bubbles burst three years ago, property developers in the Gulf are putting more emphasis on mundane but affordable housing.
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 realised 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 $130bn, 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, King Abdullah pledged SR250bn ($67bn) 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 a AED21bn ($5.7bn) 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 United Arab Emirates, 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 AED1m ($272,0000) in a middle-class neighbourhood 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.