Palestinian economy - Housing a growing population

16 May 2008

A government programme to develop affordable homes for the people of the Occupied Territories will also create much-needed employment.

Preliminary findings from the 2007 Palestinian census, released in February this year, suggest the population of the Occupied Territories has jumped 30 per cent over the past decade to 3.76 million, amounting to an average annual growth rate of 2.7 per cent.

This rapid population growth, coupled with the slump in the Palestinian economy since the start of the second Intifada in 2000, is placing ever-increasing strain on the availability of affordable housing in the Occupied Territories.

With 65 per cent of the Palestinian population aged under 25, the Palestinian Authority (PA) has realised it has little time to recover the situation before a full-blown housing crisis develops. At the same time, housing provides an opportunity to reinvigorate a key sector of the stagnant local economy and to draw some critical foreign investment into real estate.

A recent study by the Portland Trust, a UK-based non-profit-making organisation dedicated to promoting stability between Israel and the Palestinians through economic development, is acting as a stimulus to investment. Together with US engineering group Aecom, the trust places the current housing shortage at 30,000 units, rising to 130,000 within a decade. By 2017, the analysis estimates that 70 per cent of Palestinians will require new housing.

Meeting need

“We sat down with the various players in late-2006 and asked what could be done to kick-start the economy, and the answer is housing,” says David Freud, chief executive officer (CEO) of the Portland Trust, which has also played a key role in the conception and development of the initial 15,000-unit programme. “What is needed is affordable housing for ordinary earning Palestinians. Previous development has been in high-end housing.”

Government and private sector enthusiasm for a substantial West Bank housing programme gained momentum in 2007, and about 15,000 homes are to be built over the next three years in a series of proposed housing projects. Ground is set to be broken on the first of these by the middle of 2008.

Other organisations are also getting involved. In April this year, the Palestine Investment Fund (PIF), the PA’s sovereign wealth fund, unveiled plans for its own $1.5bn affordable housing programme to develop 30,000 homes over five years. Again, low-to-middle income families will be targeted, and thousands of job oppor-tunities created. The various projects should give the struggling economy some much-needed impetus.

There are several benefits to the programme. First, it will begin to redress the housing shortage, providing thousands of affordable new homes for the young Palestinian population soon to be leaving school or university, starting families, seeking work and launching careers.

With the economy struggling to right itself, construction has also been targeted as one industry in which the Occupied Territories retains expertise and a skilled labour force. Work has steadily dried up locally and in Israel since 2000, but the sector retains huge potential for job creation. The Portland Trust-Aecom study puts the decline in construction activity between 1999 and 2007 at 60 per cent. More-over, the projects will create ancillary work opportunities for businesses providing services for the new developments.

Avoiding interference

Finally, if the sites for these projects are selected carefully, away from Area C (West Bank land controlled by Israel), it is hoped the developments can proceed with a minimum of interference, unlike the proposed West Bank industrial zones, which remain fraught with logistical difficulties on the security front.

The Portland Trust-Aecom study finds that the 15,000-unit programme conceived in 2006 will involve almost $1bn worth of investment over two phases.

Principal among the projects taking shape is Rawabi, or ‘The Hills’, a community of 5,000 homes to be built 10 kilometres north of Ramallah, just beyond Birzeit University. Managed by Bayti Real Estate Development Company, a subsidiary of Massar International, ground breaking will take place on land for the private sector development in the summer.

Those associated with the project are fond of pointing out that excluding the refugee camps that have swelled across the Occupied Territories since 1948, this is one of the first completely new towns built in Palestine since Biblical times.

In line with the requirements of the national housing programme, Rawabi’s apartments will range in price from $40,000 to $75,000. Bashar Masri, chairman of both Massar and Bayti, has been credited as one of the first to see the almost unique opportunity provided by the housing sector to stimulate the job market, attract private sector investment and satisfy a growing national need.

Nonetheless, he admits that Massar fell into real estate development almost by default. “Between 2001 and 2003, we were forced to look outside Palestine as we could not afford to stay there,” he says. “We saw opportunities in Morocco and began to invest in real estate for the first time, which proved very successful.

“We realised there was huge demand for affordable housing in Palestine. This was not a new scenario, that need is always there, but this time the political and commercial situation is slightly better.”

Affordable housing

The planned housing developments in the Occupied Territories will be supplemented by a $500m affordable mortgage scheme. In April this year, the PIF announced the formation of the Affordable Mortgage & Loan Company (Amal), in conjunction with the International Finance Corporation, the Overseas Private Investment Corporation, the Bank of Palestine and the Palestine Mortgage & Housing Corporation.

Even though the new houses under development will be reasonably priced, there has been a lack of available domestic financing, with Palestinian banks unwilling to enter the mortgage market. Amal, however, will offer loans of up to 25 years and should be functioning by the end of the year. The PIF will also assemble a development company to take the housing projects forward over the coming months.

Mohammed Mustafa, CEO of the PIF, says making long-term finance available to young Palestinian families is critical to making a success of the housing initiative.

“This combination of the housing and mortgage programmes is unprecedented in Palestine,” he says. “The PIF is reinvesting the wealth of the Palestinian people into strategic sectors. We want to take a lead in rebalancing the economy, and to reinvigorate the private sector. There is not enough public-private partnership at the moment, but we hope projects like this will provide incentives for regional investors to come on board at lower risk.”

Having taken the lead in pushing the benefits of affordable housing and developing Rawabi, Masri is wary that the government’s move into the housing sector with the PIF could intrude on his investment. The PIF announcement in mid-April came just as Masri was involved in final negotiations with potential Gulf-based investors for Rawabi.

However, he is confident that Bayti’s operation can compete, and acknowledges the vital importance of the PIF’s mortgage initiative to building a sustainable market. Many of the Palestinians buying homes in Rawabi will be doing so with loans from Amal.

“We are concerned when the PA announces 30,000 units, possibly on public land,” says Masri. “This could distort the market and scare off investors. It was a premature announcement, but can easily compete with the government as the government is usually inefficient.

“I have met with Mohammed Mustafa and he assured me of his intention to work with the private sector, and that this will be a fair competition.

“The $500m lending scheme is a very positive step. The market needs this initiative. The government should focus on this.”

This tension between the competing interests of the public and private sectors will not disappear quickly. However, as Masri says, the growing shortage of housing in the West Bank means there is a lot of room for new entrants to the market, and these projects can only represent the beginning of an ongoing process.

“There is a severe shortage in the West Bank and this is growing at about 20,000 units a year,” he says. “We are only making 5,000 in the first instance and the other projects that have been put forward are running behind us. We will struggle to meet demand anyway.”

More new town projects have been mooted for Nablus, Jenin, Bethlehem and Hebron. However, the security situation prevents developers from moving forward with similar projects in Gaza, where population growth is most rapid and the need is greatest. Private contractors and the government have repeatedly stressed a desire to redevelop the strip when the opportunity arises.

“Our main goal is to create jobs in Palestine,” says Masri. “There are thousands of jobs in construction to be created from these projects, plus thousands of indirect jobs. We want to apply this model to Gaza as soon as we can.”

Proposed investment

  • Housing and real estate: $735m

  • Industry: $157m

  • Tourism: $284m

  • ICT: $166m

Value of projects to be put forward at the Palestine Investment Conference, 21-23 May. ICT=information & communications technology.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications