Saudi Arabia’s massive social
spending packages will have a positive impact in the long term
as an increase in supply will help reduce rents, one of the main
drivers behind inflation, the finance minister said.
“If there is a large size of spending that exceeds the power
of the economy, then according to economic theories there will
be inflationary pressures,” Ibrahim al-Aassaf told al-Arabiya
television in an interview on Saturday.
“But in the long term it will have a positive impact on
inflation because the major reason for inflation is high
rents.”
Saudi Arabia’s king Abdullah in March announced $93 billion
in social handouts, on top of another $37 billion announced less
than a month earlier.
The $93 billion included 250 billion riyals to ($66.67
billion) be spent on 500,000 new homes, as the top oil exporter
seeks to address vast undersupply.
Economists and experts have estimated that these new homes
could take around five years to build.
A report last month by Banque Saudi Fransi said private and
public developers needed to build about 275,000 units a year
through 2015 to meet demand.
The average price of a small villa in the kingdom’s capital
Riyadh rose 19 percent in the second half of 2010, while prices
in Jeddah rose 17 percent, it said in the report.
Saudi annual inflation slowed to a 10-month low of 4.9
percent in February with growth in housing and transport costs
subsiding, though analysts said the slowdown was temporary due
to robust global food prices and crude above $100 per barrel.
Economists and experts say between 30-50 percent of Saudis
own homes, but the majority of young Saudis do not because the
mimimum salary required to obtain a mortgage is out of reach for
most.
The kingdom has only a 2 percent mortgage penetration in its
real estate market, experts say.
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