Oil price key driver for Saudi real estate

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High oil prices and continued expansion of Saudi Arabia's economy is driving the kingdom's real estate market, according to a survey by CBRE.

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.

"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.    

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