After years of building luxury homes which now languish on the market, property developers in the Gulf are finally to start building more affordable homes.
Their main motivation is obviously to sell more property, but they are also being encouraged by their governments, who are trying to improve living standards throughout the region, as the lack of affordable housing was part of the reason for the recent unrest in the region. Bahrain and Saudi Arabia have realized this is a real issue, and Saudi Arabia has already promised to spend around $30 billion on building more affordable homes and creating jobs. King Abdullah has also pledged $67 billion which will be spent on 500,000 new homes.
Bahrain has a shortfall of around 50,000 affordable homes, and is now looking towards filling this shortage. The governments do have a certain amount of influence over the developers as they are able to launch large housing projects and award the contracts to state linked firms. Some developers are partly owned by the government, or have been bailed out by the state. The largest developer in Abu Dhabi, Aldar Properties received a $5.2 billion bailout from a state owned fund, and whereas in the past it has built Abu Dhabi’s Formula One racetrack and the marina and yacht club, its focus is now on mid-income housing.
In Dubai, Nakheel, the state’s largest developer has just written off $21.4 billion from the value of its real estate property in the wake of the world’s biggest downturns, and Nakheel was forced to reduce its workforce and to halt a number of projects including the man-made islands of Jebel Ali and Deira. Bahrain also has an enormous housing project underway on a six billion-dollar development of artificial islands called Durrat Al Bahrain, but unlike Nakheel’s Dubai Palm development, most of the housing is in the mid-income range.
Even if the government wasn’t encouraging developers to build more affordable homes, it would make perfect sense for them to shift their focus towards mid-income housing.