A home for all: Taking steps to meet the increasing demand for affordable housing

Social housing is certainly not a concept unique to Bahrain – around the globe, governments provide reduced-cost homes for low-income citizens. The Kingdom’s rapidly growing population is likely to cause an increase in demand for social housing that will require additional support to meet. Accordingly, the government has turned to the private sector to supplement its stock of subsidised and inexpensive homes.

SUBSIDISED HOMES: Households with incomes of less than BD1200 ($3168) per month qualify for social housing. In 2010 around 56% of Bahraini households met this requirement, according to the third-quarter 2011 “Bahrain Economic Quarterly”, a report prepared by the Economic Development Board (EDB), a public agency with an overall responsibility for formulating and overseeing the country’s economic development strategy. Families that enrol in the programme are required to pay a certain portion of their income every month to the government, up to 25% of household earnings. After 25 years of these instalment payments, the family receives the title deeds to the property. State-run Eskan Bank handles the back-office operations of this system, while the Ministry of Housing (MoH) determines the beneficiaries and maintains the list of families waiting for homes.

Over the years, this list has grown quite large – the MoH officially estimates its size at 54,420. Moreover, it is continuing to increase, with several thousand new households added each year. According to calculations by the EDB, assuming a moderate rate of deterioration of the existing housing stock, an additional 51,519 households will qualify for social housing by 2020 – on top of those on the current list.

Every year the MoH also supplies a certain number of homes to people on the housing list. Prior to 2012, the MoH was able to provide around 1313 homes on average per year to waiting beneficiaries. For these projects, the government designs the units, procures the land, or identifies government land to be used, and it then tenders construction of homes to local contractors. According to Basem bin Yacob Alhamer, the minister of housing, the ministry has targeted building 8000 units per year starting in 2012.

NEW AVENUES: While increasing the number of units built per year will help reduce the waiting list, the MoH has recognised a need for new methods of supplying the market, according to Alhamer. “We have reached a point where our capacity cannot meet demand for social units,” he said. As an alternative to the design-and-build model, the MoH has been increasingly turning its attention to other procurement methods, such as public-private partnerships (PPPs).

The Kingdom’s first PPP deal was signed with a consortium led by local developer Naseej in January 2012. According to the agreement, the group will build 3110 social units for the government, which will be handed over in stages over five years.

Initially the government proposed a deal that would see the developer paid a certain amount over 25 years. However, the parties later agreed to an alternative structure, such that Naseej would be a paid over a five-year period, with the consortium maintaining and managing the facilities for the first 10 years.

According to the terms of the final deal, the government will pay for the units as they are completed, and at an agreed-upon price, according to the type of unit. In total, six models will be available: two-, three- and four-bedroom villas, plus two-, three- and four-bedroom apartments. The developer is responsible for all contracting, financing and infrastructure within the development, while the government has agreed to provide infrastructure for the surrounding area. Finally, the land – which can be a significant expense for developers working in Bahrain due to the scarcity of available space – will remain owned by the government and be provided to Naseej under a licence permitting such development.

While the government could enter into more PPPs with other developers, as of January 2012, the MoH was waiting to see how the Naseej deal would go, according to Alhamer. In addition, he told OBG that the government was “considering three or four other avenues”, but declined to provide details.

Meanwhile, some private sector players told OBG that another PPP is likely in the works. Aaref Hejres, the CEO of Diyar Al Muharraq, one of Bahrain’s largest mixed-use residential urban developments, said that he anticipates a second PPP will be launched by the end of 2012, adding that the government’s agreement with Naseej was an important first step, and that it “shows that the government is serious” about addressing the challenge of social housing.

AFFORDABLE HOUSING: While the bulk of the homes under the Naseej deal will be social housing units, there is a second component of the project that will see the construction of so-called affordable homes. While no official definition of low-cost housing exists, most consider units priced in the range of BD85, 000-120,000 ($224,417-316,824) to be part of this segment. According to Christopher Sims, the CEO of Naseej, the project’s 990 affordable units, which will be built to government specifications, will be aimed at households with incomes of BD400-1200 ($ 1056-3168) per month. The developer is responsible for marketing and selling the units, but the government has placed certain restrictions on Naseej.

For the first six months, only people on the social-housing list are allowed to buy these homes. For the next six months, anyone in the first category, plus people within a specified income range, will also be able to purchase the affordable units. The restrictions will be gradually loosened, and after 18 months, the market will be completely open.

Other developers are watching to see how Naseej’s units do in the market, and the outcome of their sales could influence whether or not others enter the segment. However, there are already other players active in the affordable housing segment, including Manara and Diyar Al Muharraq. The former has two affordable housing projects under construction at present, with a total of nearly 300 units. A third project will have 2000 units built in several phases, with the first phase (200 units) to be completed by 2014. Diyar Al Muharraq’s affordable housing units are part of a much larger $3.2bn mixed-use development that was launched in 2008. In April 2011 the developer announced that it planned to spend $500m to expand the project’s affordable component. Hejres told OBG that the developer has carried out a substantial amount of market research to help ensure the affordable units, which are all houses, not apartments, will have the features that Bahrainis want, such as two kitchens and parking space for two cars.

BOOSTING THE MARKET: One factor that could boost the affordable market is the recent increase in the maximum amount that government-owned Eskan Bank can lend as part of its subsidised low-cost mortgage programme. For many years, the cap was set at BD40,000 ($105,608), but it was raised to BD60,000 ($158,412) in 2011. To qualify for the loan, which provides financing at 3% for up to 30 years, the applicant must have household income of less than BD1200 ($3168) and be purchasing their first home.

In 2011 the lender booked around BD25m ($66.01m) in mortgages under its subsidised mortgage programme, according to Samar Ahmed Noor, a mortgage loan manager at Eskan.

The government has taken other steps to make the affordable housing segment more attractive for developers. For projects that are aimed at the affordable housing market and meet certain criteria, Eskan Bank will approve the sale of units while the project is still under construction. Manara has participated in this programme, which is available to any developer, according to Hasan Al Bastaki, the managing director at Manara. Al Bastaki added that the government could take further steps to help developers in this segment by agreeing to purchase a certain number of units. This would reduce financing costs for the development, and therefore the cost of the units, which in turn would encourage more affordable homes to be built.