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JLL publishes its second MENA ‘Middle-Income’ Housing report, reviewing three key regional markets – KSA, Egypt and the UAE.
JLL, the world's leading real estate investment and advisory firm, has today published a special report on the middle-income housing segment in the Middle East and North Africa region. The report highlights the social and economic impact of a marked shortfall in the required supply of middle-income housing, suggesting that significant efforts are needed to address the current imbalance.
The report clearly outlines that this shortage is an important and consistent issue across all three major MENA markets (KSA, Egypt and the UAE), While there is a general recognition of the problem and a growing number of policy initiatives and projects targeting the middle income sector, more needs to be done if the current shortage is not to widen further before it is reduced.
'Middle-Income' Housing Defined
JLL defines 'middle-income' housing as that provided by the market which is affordable to the middle tranche (i.e. 40-60%) of households on the assumption that they spend no more than 30% of their gross household income on housing.
The report excludes labour accommodation and national housing projects where accommodation is provided by major employers for their workers or governmental agencies for local citizens. It identifies two major components to the market, properties for sale and those for rental, as many middle income households cannot purchase property due to either regulatory restrictions or a lack of available capital and finance.
The definition of affordable varies across the region in terms of 'price point'. JLL's report indicates that an 'affordable' sales price in the UAE is currently circa AED 790,000 with an affordable annual rent of around AED72,000. In KSA the affordable sales price is circa SAR 450,000 and the affordable annual rent is circa SAR47, 000. While in Egypt, the affordable sale price is circa EGP285, 000 and annual rent around EGP 32,000.
The importance of the middle–income sector of the market should not be under estimated, as it accounts for over 60% of all household in both KSA and Egypt. That equates to 3.3 million households in Saudi Arabia and 12 million in Egypt. The relative numbers in the UAE are smaller, but there are still over 820,000 middle income households, representing almost 40% of all households in the UAE.
Shortage of 'Middle-Income' Housing
In 2011, JLL identified the need for an additional 3.5 million affordable homes across the region. This gap has almost certainly increased over the past 5 years as the vast majority of developments delivered and conceived throughout MENA over this time, have been aimed at more affluent households. Only 22% of residential units launched in 2015 to date in Dubai are 'affordable' to 'middle-income' households according to JLL's definition, while we have not seen any residential units being launched this year that meet our definition of 'affordable' in the other markets.
Overcoming the Challenges to Middle-income Housing
JLL's report highlights several factors that have contributed to the current shortage of affordable housing. These include:
The complexity of these factors means that solutions are not necessarily easy to find. The report suggests that resolving the shortage of middle-income housing requires a concentrated effort involving government agencies, private developers and other stakeholders, focusing on six key factors:
Governments around the region have started to allocate significant financial resources to encourage more development of middle-income housing, but more needs to be done. We believe there is a need to re-think the existing relationship between Government and the real estate development industry to create more affordable housing that middle income families can afford .We also recommend more innovative planning and design initiatives to create more attractive, environmentally sustainable and cohesive communities as well as accessible financing, empowering middle income families to take a stake in their future."
Plumb also highlights several examples of best practice that offer some hope that changes are already beginning to take root.
"Developments such as Nshama's Town Square in Dubai show that private sector developers are able to deliver affordable product for middle-income households in the UAE. Elsewhere in the region, timely government initiatives such as the launch of the KSA Ministry of Housing's 'ESKAN' project should result in progress towards the supply of 500,000 affordable units as it aims to increase the proportion of homeowners in the Kingdom. In Egypt, both Arabtec and Orascom are also contributing significantly to the need to provide more affordable homes".
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