Since the incumbent government took office four years ago, Maldives has undergone a massive shift towards diversifying its economy leading to mega infrastructure development projects on an unprecedented scale.
Understandably, the construction sector has been one of the major beneficiaries buoyed by low commodity prices and robust credit growth. The numerous large infrastructure projects initiated by the government have fueled the boom with residential and commercial buildings rapidly cropping up in the capital Male and the reclaimed suburb Hulhumale.
A fortnight ago, the government had launched the largest single social housing scheme to date in Hulhumale with over 60 towers -- 25 stories high which is an estimated 14,000 flats with the capacity to house 100,000 according to the government -- nearly a quarter of the population. The project adds to the hundreds of luxury and semi-luxury units over a dozen construction companies are building largely in the satellite town. Though affordable housing has remained for years at the forefront of social issues especially in the densely populated capital, experts are beginning to fear a crash warning that supply could soon exceed demand.
Former president Mohamed Nasheed's government had undertaken a relatively comprehensive research to later say that around 10,000 flats were needed for the greater Male region to ease the congested capital. However, even if one accounts for the population rise since, the current real estate trend suggests a possible lack of foresight which could in turn threaten the already fragile economy of the country.
When one considers the immense debt taken on for housing, even the slightest down turn in prices could spell catastrophe especially to the commercial real estate developers. In China, US and more recently Australia have already experienced a similar trend when the housing bubble burst leaving 'ghost towns' and bankruptcy in its wake.
The lack of market study remains a key concern for financial experts with private developers riding the bubble while the government initiates hundreds of social housing projects which could very well 'flood' the greater Male region with housing. The private developers would face the brunt of a collapse as the majority of the largely middle-class population cannot afford the high-end flats on offer. This means the commercial housing are already competing to meet the demand of a small yet exclusive percentage which could backfire in the not so distant future if the supply continues at its present rapid pace.
We are already witnessing a glimpse of the looming danger with several private developers struggling to secure the sale of all its units as the exorbitant prices scares away the people who are in actual need of housing. Buying a home with a loan is equally discouraging for the middle-class with the high equity and monthly repayment amounts. The recent open invitation by incumbent president Abdulla Yameen Abdul Gayoom to the youth to head to the capital could be that the president himself sees the impending threat and is attempting to trigger more demand to meet the ever increasing supply.
For the many families resigned to live in tiny apartments but still forced to pay over the top rent, the real estate boom may understandably offer hope of a better future. But everyone rushing to exploit the robust real estate growth without much forethought could plunge the country into never before seen economic meltdown that a tiny island nation such as the Maldives would struggle to recover from.
