MENA faces shortage of 3.5m affordable homes
The Mena region is facing a shortage of 3.5 million affordable homes, with the biggest undersupply in Egypt, Iraq, Morocco and Saudi markets — a major challenge, given that this is one of the reasons behind the political turmoil in the Arab world, a Jones Lang Lasalle report said. Egypt requires 1.5 million affordable homes, Iraq one million, Morocco 600,000 and Saudi 400,000 homes.There is also a need for affordable housing in the UAE, Bahrain and Oman.
Demand is forecast to overtake supply in the next five years, widening the current gap even further, the report said. In the UAE, the shortage of affordable housing disproportionately affects expats because the government provides free land and low-cost housing finance to Emiratis.
“The problem faced by mid- to low-income expatriate families is particularly acute in Abu Dhabi, where the high cost of accommodation resulted in an average sharing ratio (the number of families per dwelling) of 1.9:1 in 2010,” the report noted.
In Dubai, a major adjustment in rents in the recent years has effectively solved the shortage of affordable housing, according to the report. There is also a sufficient supply in rural parts of Abu Dhabi, and the northern emirates. Low-income households in the UAE have difficulty getting access to mortgage and other long-term housing finance: In the UAE a minimum monthly household income of around Dh20,000 is required to access housing finance in the form of bank loans and mortgages, while 45 percent of households in the UAE currently earn less than Dh15,000, according to the report. In the UAE and Bahrain, average house prices are between five and six times the average annual salary, while markets in North Africa such as Algeria and Tunisia have some of the least affordable housing in the world, with the average house in Algeria costing 30 times the average annual salary, it said.
In the UAE, 43 percent of households fall within the “low-income” definition in the report (households that earn less than Dh9,000 a month), 84 percent in Egypt and 86 percent in Bahrain.
Several factors have contributed to the inability to provide affordable housing including high land values, high cost of utilities such as electricity and sewage, the cost of providing transport to remote areas and low profits compared to other sectors, the report noted.
Analysts and industry insiders cited other reasons. “The mortgage industry [in the UAE] is under-developed. Except for a few long-standing developers here, the banks are generally not interested in giving mortgages for property developers,” said J.R. Gangaramani, chairman of the Al Faraa Construction Group. The shortage of affordable homes provides an opportunity for developers amid the political turmoil in the region.
“There’s no other way. Change is coming. There’s unemployment and a lack of housing, and new governments in power are trying to address the situation. There’s a lot of demand for housing in these countries and it should be a good boom for construction companies,” Gangaramani said.
Effects of euro crisis
If the European debt crisis worsens, this will have negative repercussions on consumers here seeking housing finance, according to Matthew Green, CBRE head of research and consultancy.“Banks have to consider what is going on in Europe and how that may impact the liquidity that’s available here... If the debt crisis worsens in Europe, there will be a liquidity problem here and it will be passed on to consumers.
“The rates will go up and banks will be even less willing to lend than now. There are potential risks in the market, though we are edging towards more stability in the local market,” he said, pointing out that lack of transparency in the property market also makes it risky to fund.
- Mounting supplies: Dubai's impending property correction
- The $200 billion boom and slave labour: the realities Qatar must come to terms with
- This times it's North Koreans! Modern-day slavery still 'rampant' in Qatar
- The Dubai Tram: A good ride for Marina property prices or not?
- The other side of the economic 'miracle': 65% of Dubai residents forced to relocated due to exploding rents