Rise of affordable housing to boost MENA’s real estate sector

Transforming the region with accessible and sustainable living solutions
Rise of affordable housing to boost MENA’s real estate sector
Various factors underscore the need for affordable and sustainable housing solutions, especially in the MENA region.

Adequate housing is one of the most essential things in life. Yet around 1.8 billion people globally don’t have it. By 2030, an estimated 3 billion people will need access to it. According to UN-Habitat, the world needs to construct 96,000 new homes daily to accommodate that.

What’s driving demand?

Various factors underscore the need for affordable and sustainable housing solutions, especially in the Middle East and North Africa (MENA) region. These include a rapidly urbanizing population and heightening climate change impacts. With a pressing demand for inexpensive houses, this segment presents an opportunity for substantial development. Simply put, it’s poised to become the next growth pipeline for the region’s real estate sector.

A report by the World Green Building Council (WorldGBC) emphasized that the Middle East, in particular, is among the world’s most urbanized regions. Over 56 percent of its population resides in cities. Meanwhile, urbanization could increase to 68 percent by 2050, equivalent to roughly 646 million urban dwellers. Consequently, housing will dominate land use, accounting for 70 percent of urban areas in many cities. 

In Dubai, UAE, access to affordable housing has long been a challenge. In 2015, a report by JLL revealed that only about 20 percent of the new housing stock was considered “affordable.” At that time, the most an average household could spend on housing was an annual rent of AED72,000 or a purchase price of AED790,000. This is based on the global standard of housing costs, making up 30 percent of total household income.

While these figures may have shifted over time, it remains evident that most housing remains inaccessible to many people, especially middle-income professionals.

Approaches to affordable housing

According to JLL MENA, several key issues arise from the lack of affordable housing. For example, high rents force families to opt for substandard housing. The lack of budget-friendly units can also lead to overcrowding, as seen in central areas like Bur Dubai and Al Satwa.

The Dubai 2040 plan recognizes the urgent need to increase the supply of affordable housing. One proposed solution is to offer free or heavily subsidized land for such projects, as seen in other MENA countries like Egypt and Morocco. The plan also suggests incentives like higher plot ratios and reduced parking requirements for affordable housing developments.

Across the UAE, leading developers like Emaar, Aldar, and Majid Al Futtaim — known for offering luxury units — are also incorporating affordable housing options. In addition, they are also adopting an integrated and sustainable community approach.

For example, Emaar South offers shared amenities for residents of all income levels. On the other hand, Majid Al Futtaim’s Elan focuses on quality living with an emphasis on walkability, connectivity, and access to essential services. Meanwhile, Aldar’s Noya in Abu Dhabi prioritizes green spaces, community centers, and sustainable design.

Saudi Arabia’s housing challenge

Saudi Arabia faces similar challenges with affordable housing, particularly given the rapid growth in real estate prices.

In a report by Knight Frank, the total number of real estate transactions in Saudi Arabia dropped by 17 percent in 2023. The total value of deals declined by 9 percent. Residential transactions, which make up nearly 60 percent of all real estate transactions, fell by 16 percent.

“The figures certainly reflect what we have been expecting for some time. The residential market has experienced phenomenal price growth over the last two to three years, with prices in Riyadh, for instance, continuing to climb into record-high territory. Unsurprisingly, the high home values have contributed to growing affordability issues, which have been further exacerbated by the rising cost of borrowing,” stated Faisal Durrani, partner at Knight Frank.

Saudi Arabia’s Ministry of Housing aspires to achieve a 70-percent homeownership target by 2030. Among its strategies to reach this goal is the launch of Dhamanat in July 2023.

“Dhamanat’s role is to provide financing guarantees in conjunction with mortgages, thereby facilitating easier access to home financing,” the Knight Frank report noted.

Read more: Dubai’s residential segment thrives with 24.7 percent annual growth in Q1 2024: Report

Partnerships and sustainable housing

Additionally, Saudi Arabia pins its hope on massive housing developments through partnerships with private companies. For instance, the ambitious $63 billion deal between Partana and Roshan, Saudi Arabia’s housing development arm, aims to build 400,000 homes using sustainable materials.

This partnership highlights the country’s commitment to addressing the housing crisis while also promoting sustainable construction practices.

The intersection between affordable and sustainable housing is indeed inevitable, considering that MENA is a region particularly vulnerable to climate change. The Affordable Housing Project in Jordan is a notable case study. The program retrofitted 48 homes and built three new ones across five districts in the semi-arid country.

As a key outcome, monthly electricity costs decreased by 60 percent, and 50 percent less energy was used for heating and cooling. The project’s impact extended beyond offering a more affordable and sustainable living solution. Residents recorded a 10 to 25 percent increase in mental performance and memory and 8.5 percent shorter stays in hospitals. Workers also reported an 18 percent higher activity rate.

The potential of sheltertech

The shifting focus on both eco- and budget-friendliness has also given rise to a burgeoning segment of climate tech: sheltertech.

“The affordable housing sector presents significant investment opportunities that aim to meet climate change adaptation and mitigation goals. This is especially so for sheltertech, a term used to describe the sector where startups and businesses work on innovative and scalable products and services catering to affordable housing markets,” noted Habitat for Humanity International in its report.

Investors are increasingly attracted to sheltertech ventures, as evidenced by the success of companies like Kubik in Ethiopia. It recently secured USD 3.34 million in seed funding to address plastic waste and affordable housing.

However, there remains a significant investment gap. Over the past ten years, an estimated USD 145 billion to USD 174 billion in venture capital is still needed to reduce greenhouse gas emissions in the built environment through climate tech solutions.

Urging synergy, Saif Eddine Laalej opined, “To build longer-lasting, more affordable, and sustainable housing, we need to collaborate.” He is the CEO of Zelij Invent.

The Morocco-based startup won the sheltertech category at the MENA Housing Forum Innovations Awards 2022 for its product called Recyblock. Recyblock is a hollow block made from 50 percent plastic waste.

“We need to trust each of the stakeholders in the sector. We need to trust the new initiatives and solutions developed by different companies in order to work together to create a positive impact on the housing sector,” he added.

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