Saudi Arabia’s shortage of adequate housing for its growing population is a result of “bad planning” and the absence of legislation that regulates and paves the way for mortgage financing, Prince Alwaleed said.
“I think there were several reasons [for the housing crisis in the kingdom],” Alwaleed who is a nephew of King Abdullah of Saudi Arabia, said when asked by a group of hosts in an three-hour interview on his Rotana entertainment channel about his views on the housing shortage.
“The first was bad planning, let’s be honest…there was bad planning in the past,” he said.“However, King Abdullah and his leadership diagnosed the situation and tried to take quick and effective measures.
"Another problem we have is that the housing market can’t mature and grow if there isn’t a mortgage law and this was delayed a great deal in Saudi Arabia. It’s still not active now. No financial institution or bank can give a loan to anyone unless it is able to have the right to own the property if there is a default.”
The kingdom which is spending more than $500bn on its infrastructure is earmarking a large portion of the funds for housing to meet the growing demand for its growing population. The International Monetary Fund estimates the kingdom's gross domestic product will expand 4.2 percent this year down from about 6 percent in 2012.
"In the real estate sector, the key issue over the past few years has been the growing problem of ‘social’ or ‘affordable’ housing, which remains largely out of reach for the majority of the population largely due to the lack of financial products available to them," CBRE said in a survey last month.
"The reason for the lack of products has its roots in the lack of security for lenders in the event of mortgage defaults."
About 60 percent of the Saudi national population, approximately 10 million Saudis, live in rented accommodation, according to CBRE. High land prices hinder attempts by private sector developers "who find themselves largely unable to meet the price requirements of the mid to low-end sectors of society who wish to buy a property."
The consultancy went on to say that high net worth Saudis continue to favour land as a long-term investment vehicle, "vastly inflating residential land prices and consequently excluding low-cost housing from vast areas of the kingdom."
"There is virtually no regulatory framework provided by the government to govern land trading, and the participants typically take little account of the actual economic (or ‘residual’) value of the land when making their investment decisions," it added.
Last month Governor of the Saudi Arabian Monetary Agency (SAMA) Fahad Al-Mubarak was cited by Arab News as saying the regulator will allow foreign companies to provide mortgage financing in the kingdom as the government
The new mortgage legislation when it comes into force in the kingdom will "transform home financing in Saudi Arabia to properly secured lending," the rating agency Standard & Poor's said in a report in February.
The draft law approved last year will help with home financing in the kingdom whose population is approaching the 30m mark and requires as much as 200,000 new homes a year, according to real estate service company Jones Lang LaSalle.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.