By Praveen Menon

Burned by grand and audacious real estate projects, which became financial burdens when market bubbles burst three years ago, property developers in the Gulf are putting more emphasis on mundane but affordable housing.

Saadiyat Island Abu Dhabi
Saadiyat Island Abu Dhabi

Their motives are mainly economic, but they are being encouraged by governments, which are trying to improve mass living standards after this year’s political unrest in the region.

“The focus now is on building as per occupier demand, a concept that is relatively new in the region,” said Deepak Jain, head of strategic consulting for the Middle East and North Africa at real estate services firm Jones Lang LaSalle.

Saudi Arabia has promised to spend about $130 billion, or around 30 per cent of its annual economic output, on social projects such as building new houses and creating jobs over an unspecified period. Earlier this year, King Abdullah pledged $67 billion US to be spent on 500,000 new homes.

Bahrain is pushing to fill a long-standing shortage of about 50,000 affordable homes, hoping this will also mitigate some of the discontent behind the unrest that hit the tiny island state in February and March.

By launching big housing projects and awarding the contracts to developers, governments in the Gulf can influence the types of homes being built and the pricing.

In April, for example, Abu Dhabi awarded a $5.7-billion contract to state-linked firms to build housing for the local population. It has said it wants to provide “adequate and modern housing” for citizens “to help achieve social stability”.

Many property developers in the region are partly owned by the government or, in the case of the United Arab Emirates, were bailed out by the state after the market soured . Aldar Properties, the biggest developer in Abu Dhabi, was given a $5.2-billion bailout by the state-owned Mubadala fund.

Even without the encouragement of governments, developers in the Gulf see good reasons to build more modest homes.

In Dubai, home to the world’s tallest tower and luxurious waterfront villas on a man-made, palmshaped island created by developer Nakheel, companies are grappling with leftover inventory from a building boom that ran until 2008 and left many grand properties on the market that owners are desperate to sell or rent. That has led developers to shift focus from villas and tall towers to mid-income housing.