Emaar aims for low-cost home market

Emaar plans to swap penthouses for affordable housing as the developer of the Burj Khalifa looks to capitalise on the need for 3.5 million affordable homes in the Middle East. Known for its luxury master-planned developments, Emaar has launched a division to focus on building low-cost homes in the region. The unit, Dawahi Developments, will operate as a separate entity with its own management and staff, Emaar said yesterday. "The public sector alone cannot bridge the gap for value housing across the wider region," said Mohammed Alabbar, the Emaar chairman. But there are challenges to the business, analysts say. Land prices remain high in many countries and mortgages are unavailable to many potential buyers. "There is definitely demand from people who need accommodations," said Craig Plumb, the director of research for the property consultancy Jones Lang LaSalle. "The challenge is to produce product that matches people's ability to pay." Other large developers have entered the market, including Orascom in Egypt, with mixed results. "The consensus is that no one has come up with a business model that works yet," Mr Plumb said. But delivering affordable housing constitutes one of the major opportunities for the property industry. Demand could quickly grow beyond the 3.5 million homes, according to Jones Lang LaSalle research, and is expected to increase faster than supply in the next five years. "There's a growing and young population [in the region], and the age at which people tend to leave home at the moment is going up," said Nicholas Maclean, the managing director of the property services company CB Richard Ellis. But financing is still an issue, with lenders wary of supporting large-scale housing projects. "Developers must prove that such projects will be profitable in order to secure financing from banks and investors," Mr Maclean said. "Homebuyers, meanwhile, need mortgages from banks accustomed to financing more expensive properties." Dawahi will develop "master development design incubation and programme management to develop 'value housing' projects across the wider Mena [Middle East and North Africa] region," Emaar said yesterday. The projects will focus on the Middle East's "emerging middle class". The number of families in the region with annual incomes of more than Dh100,000 (US$27,224) is expected to double to 28 million by 2025, Emaar noted. The plan is to develop full-scale communities with education, medical, retail and entertainment facilities. The new company will target "mid-price points", creating a new category of homes. Emaar did not specify which markets it would target for its first projects. But it already has operations in several of the markets where demand is highest. More than 1.5 million homes are needed for Egypt, 500,000 in Morocco and 400,000 in Saudi Arabia, according to Jones Lang LaSalle estimates. Emaar has been winning support from analysts in recent weeks for its ability to diversify away from its core Dubai market. Last week, Arqaam Capital initiated coverage with a "buy" recommendation, noting the company's "balance sheet protection against UAE property market dynamics, relative to peers".