PALESTINE 1: Prices rocket as property is developed

06 October 1995

HOUSING seems to be the only sector of the Palestinian economy to have thrived in the past 12 months. After years of draconian Israeli building restrictions, it now takes about three weeks to obtain planning permission for an apartment block in Gaza City. Consequently, the Gaza skyline is cluttered with new and half-built high-rise constructions.

More than 80 new residential and office blocks have been completed since May 1994, and another 70 are estimated to be under construction. Most of the new buildings are residential and are financed from family savings. Some of the new apartments are for family use by the owners, while the rest are sold on.

Increasing demand, coupled with the effects of the Israeli border closures, have sent prices soaring. The start of self-rule has stimulated land values while the price of delivered cement hit a high of NIS 500 ($170) a tonne during the border closure at the beginning of the year. It is still selling at about NIS 290 ($98) a tonne. The higher costs have pushed the price of a typical family apartment to about $55,000, well out of the reach of most Gazans.

Inflated prices have sparked fears that the housing boom is speculative and could grind to a sudden halt, leaving Gaza littered with empty and unfinished buildings. 'The stage will be reached very soon when people won't be able to afford the flats,' says Khaled Abdul Shafi, Gaza officer for the UN Development Programme (UNDP). 'This housing boom is unnatural in an economy that is in serious depression.'

Outside the housing sector, Palestinians complain of seeing little evidence of the $1,200 million pledged by donors to the emergency rehabilitation programme for the first three years of self-rule. Only about $65 million has been spent on development projects so far, most of it targeted at small-scale rehabilitation schemes.

When self-rule is extended to the West Bank there is the prospect that the municipalities, armed with bilateral aid, will start commissioning infrastructure work directly themselves. There is some evidence of this happening already. A good example is Salfeet in the West Bank where local and German firms are due to be invited by the end of the year to tender for the upgrading of the wastewater system. The $7.2 million project is being funded by Germany's Kreditanstalt fuer Wiederaufbau, which signed an agreement with the Salfeet municipality in April.

Port pledges

The Gaza port is one of the biggest construction projects which is likely to see some progress. The Netherlands' Ballast Nedam, Spie Batignolles of France and Italy's Sistemi Ingegneria signed an initial agreement with the PNA in August 1994 to build the $60 million port. An environmental impact study is close to completion by the Netherlands' Grabowsky & Poort Ingenieursbur.

But the project has stalled due to a lack of finance and the slow progress of the peace talks. The only firm funds for the port are from the Dutch government, which pledged an initial $22.5 million towards the cost and may yet increase its contribution. Despite the involvement of a French and an Italian company in the initial agreement, neither government has announced plans to support the scheme financially. Funding hopes for this strategic project are now pinned on the European Investment Bank (EIB) which said in April that it would be offering about $300 million in loans to development projects in Gaza and the West Bank, of which a portion might be made available to the port project.

Work on an airport in Rafah in the Gaza Strip is expected to begin this summer. The PNA signed a $16 million contract with the Palestinian/Egyptian Arab Contractors Company (Palestine) at the end of May to complete the first phase of the airport. This comprises a runway, a terminal building and a car park. Initially the handling capacity of the airport will be limited to smaller commercial jets such as the Boeing 737. The construction contract is being financed by soft loans from a group of Egyptian banks, led by the Egyptian National Bank. However, the total cost of the first phase is likely to be nearer $25 million and the PNA is negotiating with the Spanish government for additional funds.

Two other sectors, power and telecommunications, have also been targeted for investment. In the power sector, investment has been concentrated on the rehabilitation of the distribution network which has been funded by a $22.5 million grant from the Norwegian government. In the longer term, there are plans to construct a 160-MW combined-cycle power station in Gaza at a cost of about $160 million.

There are also long-term plans to develop the telephone systems. Telpal, a new private sector company, was established in May and aims to develop a system of 600,000 fixed lines and 100,000 mobile lines over the next 10 years. However, immediate public investment of about $16 million is planned to provide increased switching capacity and more customer connections.

Several Palestinian firms are keen to invest in hotels. The two most advanced projects are in East Jerusalem and Gaza. Issa Kurdieh, director of the Sallah al-Din tower project, has permission from the Israeli authorities to build a four-storey hotel and shopping complex in East Jerusalem. Kurdieh is currently holding negotiations with Qatar's Salam International Investment to finance the $8 million project. In Gaza, the US' GRdG International is close to completing financing arrangements with the US' Overseas Private Investment Corporation (OPIC) for a$72 million hotel on the coast north of Gaza City. The US' Marriott Corporation has agreed to manage the 275- room luxury hotel.

The readiness of private investors to put money into construction projects is still dependent on visible progress in the peace process. The stalled talks and the closure of the border between Israel and Gaza at the start of the year have deterred many potential investors who had expressed an early interest. The extension of self-rule to the West Bank, followed by Palestinian elections, might help improve their perceptions. For until large-scale private investment does come to Gaza and the West Bank, most project funding will be left to the donor community.

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