Affordable Housing On The Forefront
In the backdrop of the Arab Spring, the lack of affordable housing as a major social issue has risen to the forefront. Despite the significant hydrocarbon wealth in the region, a mismatch between supply and demand for the local population has caused a crisis in the GCC housing market. Spurred by rapid population growth, rising house prices, increased migration, influx of foreign labour and lack of readily available financing schemes, this unmet demand for housing has become one of the major social problems underlying the unrest in the region.
A Regional Problem
In Bahrain more than 55,000 are on the waiting-list for affordable housing (not taking into account the likely high number of unregistered 'applicants'). In response, and as part of a wider effort to placate a very volatile and negative public sentiment, the Bahraini government has earmarked US$1.5bn for the construction of new, low-cost units. The plan - according to government sources cited in local press- is going to be financed by US$636mn earmarked in the 2013 budget and US$901mn from the 'GCC Marshal Plan', a regionally-funded pool of money set up to support the spending sprees of governments facing domestic volatility and opposition.
Elsewhere in the region we are seeing a similar picture. In Kuwait, it can take years for a government housing grant to be processed. In Qatar the massive influx of foreign expatriates has led to a significant population growth and a heavy burden on the residential market.
In Saudi Arabia due to the significant discrepancy between high house prices and low salaries, most Saudis still live in rented accommodation (only 30% of Saudis own their houses). But fear of social-economic backlash has prompted the government into a lavish splurge with two packages of social benefits outlined in Saudi's Ninth Development Plan, amounting to US$130bn in funds for education, healthcare and housing, and a pledge of an additional US$66.7bn that is to be spent on housing. According to the country's development plan, 1.25mn new units are slated for completion for 2014.
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Challenges Mounting Up
Growing And Young Population
An extraordinary growth in population and demographic developments are key drivers behind the surge for affordable housing. Over the last 40 years the GCC population has quintupled from 7.8mn in 1970 to 46.2mn in 2011, with estimates indicating 65.5mn by 2050. On top of that, the GCC population is still very young. Based on 2010 data, Oman scores the lowest median age (25 years), tightly followed by Saudi Arabia (26 years). The 'highest' median age of 32 years was found in Qatar. This trend indicates that the fastest growing segment within the GCC population is the younger generations, from the lower- and middle-income bracket, who are just entering the labour market, and looking for affordable housing. Hence, the problem of affordable housing is not going away, in fact it is growing.
Coupled with this population growth trajectory is an increasingly urban population. In fact, the GCC is ranked as one of the most urban population in the world, with over 75% having migrated to the cities. According to 2011 data, 99% of the population in Qatar, and 98% in Kuwait inhabited the larger cities. Once again this is a trend that looks set to increase on the back of the continued oil boom and its subsequent wealth that drives a fast-changing demography and large-scale urban developments.
Poor Land Utility And Lacking Infrastructure
Another important factor in the equation amounting to lack of affordable housing is lack of land. Arable land is scarce in a region that largely consists of unusable desert. Indeed, Saudi Arabia covers four fifths of the Arabian Peninsula but the majority of its vast land is desert. Similarly, Oman, Qatar and the UAE are all smaller, Bahrain an archipelago of 33 islands, yet they all face the same problem: where to build?
Then again, even if construction is possible, the lack of public transport systems connecting the areas represent another challenge for affordable housing, making developments outside the city boundaries disadvantageous to those residents that don't possess own means of travel.
Lack Of Financing Schemes
One of the main factors inhibiting a functional housing market in the GCC is inadequate financing schemes, preventing people from obtaining mortgages as means of financing. The resistance stems from religious scholars concerned about its appliance with Islamic, or shariia, law. Due to the incongruity concerning interest rates the banks are reluctant to provide financing as many of the borrowers have tended to treat extended loans as charity and default on payments are high. As a result the GCC mortgage market constitutes less than 5% of the region's GDP.
However, we are currently seeing changes being implemented suggesting potential growth in housing financing. More specifically, a draft law revolutionising the mortgage market has been approved in Saudi Arabia, presaging the formation of a more liberalised housing sector. We believe that the move could prove a huge boon to both domestic firms and international players looking to capitalise on the significant growth potential possessed by the Kingdom. Thus, an introduction of a new mortgage law, if it goes ahead, and if accompanied by corresponding uptick in banks' willingness to lend, would be a major development in the sector - fundamentally changing the approach to home buying in the country, followed by a significant increase in credit growth and construction activity. In fact, since news initially surfaced in early 2012 we have already seen a significant increase in real estate lending as reported by SAMA. The latter indicates a shift away from traditionally conservative policies and a belief in the successful implementation of the new law.