One consequence of the population growth forecasted for the Middle East is the increasing need for affordable housing. Until recently, the region’s main property developers focused on the high-end market, while the public sector built subsidized homes for lower income groups. This stereotypical state of affairs has gradually changed face, as the tendency today is for governments to enter private-public partnerships (PPPs) with the region’s leading construction firms.
Tameer Jordan, for example, is to construct 16,000 affordable homes outside Amman, and Orascom Hotels and Development (OHD) is building some 50,000 units in the 6th of October City on the outskirts of Cairo. Emaar recently won a $100 million contract to build social homes in Egypt and, as early as 2006, signed a memo of understanding with the Syrian government to build low-cost housing.
One thing is certain: constructing social housing is not just about solidarity, but makes perfect business sense. While very lucrative, the top-end of the market is limited in size as, at most, 20 percent of the region’s population is able to afford a top-notch villa or luxury apartment, let alone second, third or even fourth homes.
Market of the masses
“Some 80 percent of the world’s population lives on less than $10 a day, while some 50 percent live on less than $2.50 a day: that’s an enormous market,” said Markus Giebel, chief executive officer of Deyaar Development in the United Arab Emirates. “While it remains difficult to target the extreme poor, there are certainly opportunities in the low-income segment.”
Jonathan Reckford, CEO of Habitat for Humanity (HH), an American non-governmental organization constructing homes for the poor, explained that builders and property developers have so far largely ignored the lower-end market segments for a few basic reasons. The market’s top-end segment is extremely profitable, the region suffers from land scarcity, especially in urban areas, and zoning laws in most countries favor high-end development.
“Most importantly, it is extremely difficult for low-income groups to obtain mortgage loans, especially in the Middle East, while micro financing for housing hardly exists,” he said. “We have run such a program in Egypt for the past decade or so, and the results have been very promising. Over 95 percent of recipients pay their installments on time.”
The reason for the Egyptian government to downscale the role of its public building arm and enter PPPs, according to Egypt’s Minister of Housing Ahmed El Maghrabi, lies in the fact that the state simply cannot keep up with the rise in demand, which is mainly driven by a population growth rate of more than one million people a year.
“We will continue to work with the private sector in the future,” he said. “The government’s role will be limited to offering subsidized land and housing loans.”
One of the main contractors to build low-income housing in Egypt is OHD, which is in negotiations with the Turkish and Moroccan governments to build similar projects. Chairman and CEO Samih Sawiris said a number of conditions should be met to make PPPs regarding social housing schemes a success. First of all, he warned, companies that are only interested in making short-term profit should forget about entering the business.
“It’s a long-term investment,” he said. “Ultimately, it will make money through the appreciation of residual land values. The revenue cycle is 10 to 15 years.”
Sawiris stressed that high volume is crucial to keep construction costs down and urged governments to avoid the mistake of pushing the urban poor into an area or suburb far from the urban core where, he said, they commonly make their money.
“People will refuse to go, as they do not have the money to commute,” he said.
Wrapped up in regulation
Finally, the state and its inevitable layers of red tape should stay away. Sawiris pointed to Egyptian regulations that stipulate a three-lane-road should be constructed when a project reaches a certain size. Yet most poor people do not drive and prefer to pay less for a sand road and have access to public transport instead. “Let the government provide the land and developers will do the rest,” he said.
There was one big absentee in the debate: green building. Can developers offer mass low-cost housing schemes and provide for green solutions in terms of water and energy use?
Maghrabi admitted that his government’s focus has been on housing people. Green building practices will have to come later. At next year’s World Economic Forum perhaps?
