Public-Private Partnership (PPP) is perhaps the best model which can help in resolving the growing problem of the housing in the region including the Kingdom of Saudi Arabia, according to Ernst & Young, report.
“There is an important role for the private sector to play in collaboration with the government and the public sector. When collaborating with the private sector, however, it is critical for government to give industry players and developers clear rules and a coordinated process,” Abdulaziz Al-Sowailim, Chairman and CEO of Ernst & Young MENA, said.
According to an Ernst & Young report released at the Jeddah Economic Forum, the analysis of housing affordability, as measured by “residual income” (household budget available after paying for housing) shows wide variation across the Middle East, with UAE and Qatar achieving higher levels of housing affordability for nationals, while citizens of Saudi Arabia have lower residual incomes.
Ernst & Young is the Knowledge Strategic Consultant of the Jeddah Economic Forum 2013. The report, unveiled at the forum, recommends that regional governments need to collaborate more with the private sector to help address the growing crisis of affordable housing.
Mark Otty, Ernst & Young’s Area Managing Partner, Europe, Middle East, India and Africa (EMEIA), is delivering the opening remarks on the second day of the Forum and will speak on ‘Financial Sector: Enabling private sector innovation in housing finance’.
“The populations in MENA are growing at two or three times the rate of the global average which poses significant challenges for policy makers as they look to provide affordable housing solutions. Coping with this demand should be a priority for governments across the region,” he said.
Ad Buisman Head of EMEIA Real Estate at Ernst & Young will speak on ‘Development Industry: Solid Foundations for Effective Private Sector Engagement’ and moderate sessions on ‘The economic foundation of a competitive city’ and ‘Sustainable Future Cities: Making the most of technology’.
Ernst & Young’s report highlights that the widening gap of effective demand over affordable housing is proof that governments’ existing efforts will require more support in the coming years. The gap demonstrates that government’s current frameworks are being asked to do much more than they were ever designed to deliver.
The report also suggests that it is time for governments to make step changes in their delivery models, and in particular, to shift into a more outsourced and collaborative approach with the private sector on both the supply side (new homes) and the demand side (financing products).
Private sector developers in the Gulf often pay import duties of around five percent, whereas public sector developers pay nothing for identical materials needed for affordable housing. In addition, private sector developers are often charged up to one percent of the cost of land for registration, while public sector developers are not charged at all. Governments could readily address these costs by decreeing that private sector driven projects for affordable housing are considered ‘public sector’ because they are serving the public interest. Similar reasoning should allow developers to use more modern building techniques that have proven successful in other MENA regional countries.
“Affordable housing requires some elements of subsidy or government contribution, but governments can never solve the problem simply by pledging large sums: too much money will drive up prices, not create more affordability,” Ahmed Reda, Office Managing Partner, Ernst & Young Jeddah, said.