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Emaar launches subsidiary to focus on mid-income housing

Monday, Oct 24, 2011

Gulf News

Dubai In a nod to the shift in the region’s political and social realities, Emaar Properties has launched a wholly-owned subsidiary to create “value” housing projects in the Middle East and North Africa.

The subsidiary, Dawahi Development, comes with its own management team.

According to Emaar , the scale of the announced investments for mid-income housing is more than $150 billion. What Emaar could hope to achieve through Dawahi is a line into this fund flow and even incentive schemes such as subsidized land for the projects, according to market observers.

“It’s estimated that 40 per cent of the Arab world’s population is below 18 years and in the next 10 years most of them are going to need their own homes,” said Mohanad Alwadiya of Harbor Real Estate.

“If a developer can deliver one- or two-bedroom housing units of between 800 to 1,500 square feet and for below $250,000 (Dh918,175), the project can succeed.

“And Emaar Properties has a track record for delivery and they did deliver the Burj Khalifa at the peak of the financial crisis.”

Shortages

Housing shortages in some of the region’s major cities are estimated at over five million units, and these gaps have been acutely highlighted in the aftermath of the Arab Spring. Some of the regional governments, notably Saudi Arabia, have announced or launched social programmes with an aim to create more housing for their subjects.

Emaar also has its eyes on the incipient potential of its target audience in time to come. According to the developer, the number of families in the region with an annual income of Dh100,000 could double to 28 million by 2025.

While Emaar said in its statement that prices of the Dawahi projects would vary from market to market, the focus will be on creating full-service communities with all the accompanying facilities. This is something the master-developer has done in Dubai, and the only difference is that with Dawahi it will be value all the way.

Getting started with Dawahi will also have a material impact on Emaar’s medium to long-term cashflow as well. It should be noted that Emaar’s existing communities are sources of sustainable revenue streams for the developer.

According to an analyst tracking Emaar , “The developer already has an established network in most of the markets where it could conceivably launch Dawahi projects. It means that the initial costs for the new developer can be better managed.

“Moreover, most of the regional governments are talking about providing for social housing and this could translate into incentives and subsidies for any developer who can support these activities. For Dawahi, it also means creating a sustainable revenue stream for the mid- to long-term.”

Emaar’s announcement further confirms that the region’s real estate market has made an irrevocable shift towards value housing after an over indulgence on luxury during the recent boom phase.

“It’s clearly a strategic decision to launch a subsidiary rather than take on value housing projects under the Emaar brand,” said Alwadiya. “It’s similar to what Toyota has with Lexus and Nissan with Infiniti, and Emaar can derive better value out of Dawahi.

“Also, rather than harp on ‘affordable’ housing, the emphasis on value is strategic. Affordable suggests cheap in the Middle East context and have put off homeowners in the past.”

By Manoj Nair?Associate Editor

© Gulf News 2011. All rights reserved.