Most GCC markets face housing supply shortfall

Thursday, Sep 26, 2013

Most housing markets in the GCC are experiencing a widening demand-supply gap, as residential requirements continue to rise amid increasing population, a report by the Kuwait Financial Centre ‘Markaz’ said.

The report, furnished to Gulf News, showed that while the property market has rebounded, there is a shortfall of supply in the UAE and other major GCC markets like Saudi Arabia, Kuwait and Bahrain. Qatar, however, is moving towards an “oversupply crisis” due to a large addition of housing units, while Oman faces concerns of excess supply.

The UAE housing market experienced a significant crash in 2009 in the aftermath of the global financial crisis, and due to heavy speculative activity. The market has since bounced back and is now witnessing strong demand.

Jones Lang LaSalle earlier forecast that in Dubai alone, around 40,000 residential units are expected to fill the market over the next couple of years, representing an 11 per cent increase on the current supply, but there is no assurance all the units will be turned over on time. “While demand has started to pick up and a number of previously stalled projects are now resuming, we do not expect all the announced space to be delivered within this timeframe,” Jones Lang La Salle said.

According to Raghu Mandagolathur, senior vice president for research at the Kuwait Financial Centre, the UAE and other markets in the region are currently witnessing “near 100 per cent” occupancy, particularly in prime locations, with many families sharing apartments and villas that were originally designed for single-family occupancy.

The GCC region’s expanding population, coupled with increase in per capita income, has contributed largely to the supply shortfall. By United Nations’ estimates, the number of people living in GCC cities grows an average of 2.1 per cent every year and the total population is expected to reach 52.9 million by 2020. The growth in population is the result of high influx of expatriates, drawn mainly by economic opportunities in the region.

The Markaz report said the supply shortage and increasing demand for housing units are fuelling the rise in house prices and rental rates in markets like Saudi Arabia. In the UAE, liberal laws of foreign freehold property ownership will continue to drive the demand for residential units among expatriates in Dubai.

Markets across the GCC are also facing other constraints like rising land prices, lack of construction finance and availability of land.

“Due to the increasing demand for housing units across GCC, land prices across the region are on the rise. This has led to a situation where low-middle income households find it unaffordable to buy a house. This has led to a boom in demand for low-cost or affordable housing in the region,” Mandagolathur told Gulf News.

“However, the key constraint in this respect is the availability of land along with basic amenities within the major cities for affordable housing,” he added.

When it comes to financing, the GCC region is still largely underpenetrated compared to other countries around the world, with mortgage penetration ranging from 2 per cent in Saudi Arabia to 17 per cent in Kuwait. In other economies like the United States and United Kingdom, penetration rate is over 70 per cent.

Mandagolathur said the middle-income households in the region are currently largely underserved by loan assistance, and more regulations need to be implemented in order to open up the housing loans market.

By Cleofe Maceda Senior Reporter

Gulf News 2013. All rights reserved.


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