Published: 02/12/2008 1:00 am
A look at the reasons behind the current crunch on affordable housing
The real estate sector in the sultanate has been witnessing frenetic activity in recent years - the total investment in the sector was pegged at US$33bn by 2007-end. Ironically, a major chunk of its potential customers are being kept away owing to the lack of affordable houses catering to the middle-income groups.
While billions are being pumped into luxury housing and integrated tourism projects, affordable housing remains a distant dream, as exorbitant land prices and construction costs prevent property developers from entering the low-cost housing sector.
Everybody is busy building villas and apartments with all modern amenities for high income groups. How about low income groups? There is a big shortage of houses for the middle-class," says Anil Kumar, commercial manager of Sohar International Development & Investment.
According to industry sources, Oman needs at least 20,000-25,000 units in the next few years to meet the demand that keeps on increasing.
Property developers are also facing a demand-supply gap as far as land availability within the capital area is concerned, leading to fewer apartments and higher prices. "In any housing project, the cost includes land. When the land price is so high, the building projects will be expensive," says Anees Sultan, who runs Daleel, a project management company.
Other developers agree that affordable housing will be a pipedream as long as the combination of high land and construction costs continue. "We cannot control the cost of building materials because it is driven by market forces. There could be subsidy, but it is not a government policy. Land price is also determined by supply and demand," says one developer.
Kumar says his company recently received a sale offer of a plot in Al Khuwayr for a price of RO1,500 per square metre. After taking into account the construction cost, the total cost will touch RO15.5mn for 105 two-bedroom apartments. "If we sell it at RO1,200 per square metre, we will get RO144,000 per unit. We will be able to generate RO17mn from the project, which is neck-to-neck. If something goes wrong in our cost calculation, we will be in trouble. Why should we take such a risk?"
Another vital question is how many can afford to buy the apartment at this price. Factors like increase in the wages of construction workers and the lack of availability of labour accommodation are also pushing up the cost for construction and contracting companies.
A sub-contractor is understood to be spending over RO2,000 every month in Al Hail area to accommodate 60 labourers in apartments due to lack of labour accommodation. "There is also a shortage of workers as those from the Indian subcontinent are no longer interested in coming to the Gulf countries. A friend of mine recently went to India to recruit 40 carpenters. He could get only four," says Kumar.
As all these add to the labour costs, the ultimate cost of construction and houses also goes up. With more young Omanis taking up jobs and moving away from their parental homes, the demand for apartments has gone up considerably. Other factors like easy availability of housing loans and a phenomenal increase in rentals are also tilting the scale in favour of house ownership, driving the demand for affordable houses.
These, coupled with the fact that more than 50 per cent of Oman's population is below 20 years of age, means there is an urgent need for more housing units in the country.
Realising the demand for affordable housing, a newly formed company - Global Omani Development and Investment Company (GLOREI) - is planning to build low-cost eco-friendly housing units, targeting low-to-middle income group families.
"We have an innovative approach and new technology to bring down construction costs considerably. GLOREI is about to sign a contract with an Italian firm that produces building materials in a cost-effective and eco-friendly manner. This technology enables us to use the quantity of steel and cement - two major building materials - at a minimum level," says Mohammed al Ghassani, CEO of GLOREI.
Since the plan is to get precast structures to the site, the time taken for building a housing unit can be minimal. This allows the company to take advantage of the number of workers and thereby cost. A closely held joint stock company founded in March this year with a paid-up capital of US$112mn, GLOREI expects to capitalise on the potential in the low-to-middle income segment.
Sultan says despite a government policy of allotting 600sqm of land for every adult male for more than a decade, there is a concentration of land in a few hands. He says a majority of people who received the land has sold it at different periods. The net result is that the low and middle-income group who received land over the years, do not have it any more. Either it was used for speculative trading or passed on to other hands.
The key, developers say, is to develop land outside the capital area. High-rise buildings make sense when there is no land. In a country like Oman which is lucky in terms of availability of land, they make no sense. They can only mean more traffic congestion.
According to Sultan, the government can take certain initiatives to make affordable houses available. An option is to bring in developers for building houses for low-to-middle income people by allocating large plots, instead of giving 600sqm of land to everyone.
"The Ministry of Housing can allot land to developers at a concession price and invite them to build 200 or 300 houses in a large area to suit the Omani lifestyle. The cost structure should not be high and it should have all amenities like a supermarket and play area," he points out. "This will relieve the pressure on the government," he says.
By doing so, the available land can be utilised in a more economical way under a master plan and the government can avoid the speculative trading of land. In a way, it is addressing a serious issue that can get out of hand. "If you see the development in Oman, it is grew out of demand," Sultan adds.
Kumar says that the developers must concentrate on the area outside the capital to build houses for low income groups. "We have a plan to build two-storied economical apartments in Barka to meet demand from low income people."
Another suggestion is that the ministries introduce a single window clearance to help real estate developers. "We have to go to the municipality and the Ministry of Housing to get the clearance. The government can issue a format for the contractors to make it easy," Kumar says. Also, the procedures for building a 300sqm villa and a 300,000sqm building are the same. "These two should be separated to help the common people," he adds.
In order to make it easy for potential buyers, the builders can arrange funds for them. "Developers should sit with banks and formulate easy schemes for buyers. Various banks have different procedures. If the customer directly approaches a bank, they have to pay for the insurance. If developers arrange finance, there is no need for insurance. By doing so, they can avoid a lot of hassles and save time," he explains.
In fact, a recent move by Central Bank of Oman (CBO) to raise the ceiling of housing loan of banks to ten per cent from five per cent is expected to help the middle-class as banks will be in a better position to fund housing projects. As per the CBO records, in the first half of 2008, residential housing loans shot up by 206.3 per cent - from RO125.1mn at the end of June 2007 to RO383.2mn at the end of June 2008.
This is against 45.4 per cent growth registered in the corresponding period of 2007.
With the lack of affordable housing becoming a burning issue for the middle income group, probably the best way to address it is to call a meeting of all the parties concerned - Ministry of Housing, Muscat Municipality, real estate developers and housing finance companies - to discuss the issue in detail.
It is such brainstorming that can throw up solutions, probably even a partnership between the government and the private sector.
Housing for everyone
"We at the Chamber, along with the private sector and the help of the government, are trying to participate in building low-cost housing that will include townhouses, duplexes and apartments.
We don't want just concrete blocks and since it is low-cost housing, it should be within new cities that we create that are accessible from highways and enjoy all the same facilities.
"We are asking the government to put together the infrastructure that would include office blocks, hotels, etc., and then present the plans to the private sector.
"We will encourage all the big companies and big business houses to participate in this human cause and they should do so with an agreeable margin. This is part of their corporate social responsibility.
" If they have enjoyed Oman, it is now time to give something back. The response has been very, very good. We want to create small cities or towns with full services, not like in some countries where they build high-rise apartments and put low-income people there. I think you should consider people's feelings as well. "
Excerpt from an exclusive interview with Khalil al Khonji, chairman, Oman Chamber of Commerce and Industry, published in the August 2008 issue of BusinessToday.