Saudi Arabia
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The Saudi Arabian Property Market
Source: Oxford Business Group
New financial products and foreign investment have brought growth
The Saudi economy is currently in the midst of a sustained period of growth, as evidenced by the fact that the economy is being opened to foreign investment. According to one unofficial estimate, in 2006 Saudi Arabia achieved a 4.2% rise in GDP and is expected to reach a similar level in 2007.
In addition to be a positive growth rate, Saudi has also experienced a 50% rose in oil exports and has been welcomed with open arms into the WTO. The kingdom holds about one-quarter of the world's proven oil reserves, accounts for around one-third of OPEC's oil production and makes up almost 12% of the world's total supply.
As the world's second-largest crude producer and the largest exporter, Saudi has reaped the benefits of rising oil prices to a greater extent than any other country. It may seem ironic that in the midst of an oil boom, the government has embarked on a policy of economic liberalisation and diversification, but having witnessed one boom-and-bust cycle in the 1970s and 1980s, Saudi is now paying considerable attention to the task of sheltering the economy from fluctuations in the oil price.
The real estate market is believed to be stable. Demand, which is based primarily on population growth and economic diversification associated with such large-scale projects as King Abdullah Economic City (KAEC) is providing sustainable. KAEC is part of the planned establishment of six new economic cities, which will contain a mixture of residential, commercial and industrial space .
The cities will be designed through a public-private partnership and are meant to be self-sustaining. They will be built in Rabigh, Medina, Tabuk, Jizan and Hail, and will take about 30 years to complete. Each city has a distinct identity that has been designed to drive economic growth. KAEC, for example, will be centred on a major port and will focus on logistics, light industry and services. The Knowledge Economic City in Medina, on the other hand, will be centred on knowledge-based industries.
Demand drivers for real estate include high levels of liquidity stemming from generous oil revenues, a continued preference for investing in local markets, low interest rates and an increase in bank credit. The use of credit to fund property acquisition is rising in line with regional trends.
The banking sector provided SR22.2bn ($5.95bn) worth of loans in the first quarter of 2005, compared to SR2bn ($535.7m) in the same period in 1998. Additionally, some 70% of the kingdom's population is under 30 years of age, and so residential demand will not subside soon.
Construction costs are relatively stable by Gulf standards, having risen by approximately 25% over the past two years. This jump has been due to supply and demand dynamics and the fact that the majority of investments are concentrated in real estate and construction. Building costs for a secondary grade office space around $400 per sq. metre. Construction costs on residential property are around $295 per sq. metre. Land costs have risen by an average of 16.5% between 2002 and 2005.
Due to carefully designed laws that limit real estate purchases by foreigners to those who can claim a direct interest in the country or who are able to afford a minimum investment of $8m, the market is inherently stable, with little speculative activity. Since 2000, non-Saudi residents have been able to own real estate for a private residence with permission from the Ministry of the Interior. Additionally, they are allowed to own property that is used to house employees. Mecca and Medina are exceptions to this rule and are reserved for Muslims only.
The fact that construction is mostly taking place in urban centres has exacerbated rural-urban migration, and city infrastructure is now struggling to cope with population demands. As a result, a number of large infrastructure projects have been launched. Riyadh alone will benefit from an estimated $37.33bn of new investment by 2010.
Key developers
The number of foreign real estate players in the country suggests the truly international state of construction. Key contractors working in Saudi Arabia include: ABB Lummus Global, AMEC, Aker Kvaerner ASA, Arabian Construction, Astaldi, Bauer Spezialtiefbau, Bechtel, BOUYGYES, CB$l, Chiyoda, Consolidated Contractors, Contracting And Trading CAT, Enelpower, GAMA, Grupo ACS, IMPREGILO, Tekfen Construction & Installation and VINCL.
Main | Residential | Commercial | Hospitality | Retail
The Saudi Arabian Property Market
Source: Oxford Business Group
New financial products and foreign investment have brought growth
The Saudi economy is currently in the midst of a sustained period of growth, as evidenced by the fact that the economy is being opened to foreign investment. According to one unofficial estimate, in 2006 Saudi Arabia achieved a 4.2% rise in GDP and is expected to reach a similar level in 2007.
In addition to be a positive growth rate, Saudi has also experienced a 50% rose in oil exports and has been welcomed with open arms into the WTO. The kingdom holds about one-quarter of the world's proven oil reserves, accounts for around one-third of OPEC's oil production and makes up almost 12% of the world's total supply.
As the world's second-largest crude producer and the largest exporter, Saudi has reaped the benefits of rising oil prices to a greater extent than any other country. It may seem ironic that in the midst of an oil boom, the government has embarked on a policy of economic liberalisation and diversification, but having witnessed one boom-and-bust cycle in the 1970s and 1980s, Saudi is now paying considerable attention to the task of sheltering the economy from fluctuations in the oil price.
The real estate market is believed to be stable. Demand, which is based primarily on population growth and economic diversification associated with such large-scale projects as King Abdullah Economic City (KAEC) is providing sustainable. KAEC is part of the planned establishment of six new economic cities, which will contain a mixture of residential, commercial and industrial space .
The cities will be designed through a public-private partnership and are meant to be self-sustaining. They will be built in Rabigh, Medina, Tabuk, Jizan and Hail, and will take about 30 years to complete. Each city has a distinct identity that has been designed to drive economic growth. KAEC, for example, will be centred on a major port and will focus on logistics, light industry and services. The Knowledge Economic City in Medina, on the other hand, will be centred on knowledge-based industries.
Demand drivers for real estate include high levels of liquidity stemming from generous oil revenues, a continued preference for investing in local markets, low interest rates and an increase in bank credit. The use of credit to fund property acquisition is rising in line with regional trends.
The banking sector provided SR22.2bn ($5.95bn) worth of loans in the first quarter of 2005, compared to SR2bn ($535.7m) in the same period in 1998. Additionally, some 70% of the kingdom's population is under 30 years of age, and so residential demand will not subside soon.
Construction costs are relatively stable by Gulf standards, having risen by approximately 25% over the past two years. This jump has been due to supply and demand dynamics and the fact that the majority of investments are concentrated in real estate and construction. Building costs for a secondary grade office space around $400 per sq. metre. Construction costs on residential property are around $295 per sq. metre. Land costs have risen by an average of 16.5% between 2002 and 2005.
Due to carefully designed laws that limit real estate purchases by foreigners to those who can claim a direct interest in the country or who are able to afford a minimum investment of $8m, the market is inherently stable, with little speculative activity. Since 2000, non-Saudi residents have been able to own real estate for a private residence with permission from the Ministry of the Interior. Additionally, they are allowed to own property that is used to house employees. Mecca and Medina are exceptions to this rule and are reserved for Muslims only.
The fact that construction is mostly taking place in urban centres has exacerbated rural-urban migration, and city infrastructure is now struggling to cope with population demands. As a result, a number of large infrastructure projects have been launched. Riyadh alone will benefit from an estimated $37.33bn of new investment by 2010.
Key developers
The number of foreign real estate players in the country suggests the truly international state of construction. Key contractors working in Saudi Arabia include: ABB Lummus Global, AMEC, Aker Kvaerner ASA, Arabian Construction, Astaldi, Bauer Spezialtiefbau, Bechtel, BOUYGYES, CB$l, Chiyoda, Consolidated Contractors, Contracting And Trading CAT, Enelpower, GAMA, Grupo ACS, IMPREGILO, Tekfen Construction & Installation and VINCL.
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