Mohammed Khalil Alsayed, CEO, Ithmaar Development Company (IDC): Interview

Mohammed Khalil Alsayed, CEO, Ithmaar Development Company

Interview: Mohammed Khalil Alsayed

What is currently in the social and affordable housing project pipeline?

MOHAMMED KHALIL ALSAYED: I believe that the momentum in regard to constructing housing units has picked up very well in Bahrain in 2014. In as far as the social and affordable housing public-private partnership (PPP) project of Naseej is concerned, we are on track to deliver the committed number of units, which is around 2800. The delivery timelines are staggered so that the mechanism for delivering the housing units to individuals is not unduly overstretched, and the delivery of all the units will be completed in around three years.

How can return on investment be improved for social housing projects in comparison to the affordable and luxury segments?

ALSAYED: Firstly, we recognise that there has been a shift in the market preference away from the luxury segment in the past few years. While there is certainly a niche market for luxury housing, we also recognise that the volumes and transactions are predominantly happening in the affordable segment. In as far as the social housing sector is concerned, this is generally considered the preserve of government. Our return on investment in the social housing sector is governed by the parameters of the specific policies.

In our particular case, our PPP project is an amalgamation of social and affordable housing units, whereby the government guarantees the off-take of social units while we assume certain risks in relation to the development and sale of the affordable units. The structuring of the project is done in such a way that the equity providers are moderately rewarded for the risk they assume after paying out the debt holders. Due to the pioneering nature of this social sector PPP, the equity returns are expected to be moderate. Our longer term strategy is to pitch for large housing projects on the back of the successful delivery of the ongoing PPP project, which will hopefully provide our investors and other stakeholders a better return on their investment.

To what extent are there adequate government initiatives for increasing the attractiveness of investments in social housing schemes?

ALSAYED: The initiatives of the private sector in bringing affordable homes to the market is a clear testament that the policy framework in the housing sector is working well. If we look at the offerings in various neighbourhoods in the kingdom and the price ranges for villas or semi-detached units through to apartments, I believe it is a remarkable outcome given the so-called boom-era of the past. Whether it is a BD50,000 ($131,710) apartment unit or a BD100,000 ($263,420) semi-detached unit, this is the reality of the market.

In my own view the government should allot social housing only to the needy and not as an entitlement to all. The criteria defining what a needy citizen is would need to be carefully considered and deliberated. Furthermore, social housing units should generally be in apartment complexes and of approximately 100-120 sq metres each, meaning that the market should provide most of the housing needs of the country.

What opportunities exist in regenerating and upgrading existing unsuitable housing stock to narrow the demand gap?

ALSAYED: From a developers’ perspective, the market gap is still nascent in this segment. I say this for a few reasons. For large developers to enter the regeneration/upgrading segment, some economies of scale need to be present. Currently, the Ministry of Housing is offering loans to households for repair of their existing homes on very affordable terms. In addition, various arms of the government, including some municipal bodies, take the initiative to repair dilapidated homes. For developers like IDC, we would be highly interested in looking at the regeneration of an entire neighbourhood, which would be a more complex exercise; however, I believe that the market is yet to move in this direction from a policy perspective. When it does, we have the capabilities and skill-sets to bridge the gap.

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The Report: Bahrain 2015

Construction & Real Estate chapter from The Report: Bahrain 2015

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