By Nick Ames
Government-backed projects for Saudi’s housing markets have been slow-moving, but private sector developers are looking to fill the gap. Nick Ames reports
Saudi Arabia is becoming a beacon for real estate development and investment as the Kingdom struggles to cope with a massive housing shortfall.
One million new homes are estimated to be needed over the next five years as a combination of a young population and an expected influx of expats is forecasted to swell numbers.
Saudi’s Ministry of Housing has been swamped with demand for new homes – its website recently saw more than 1.2m requests in its first 36 hours of operation.
The government has committed itself to backing construction projects and is in the process of making it far easier for first-time buyers to obtain mortgages. However, a recent Marketview report from analysts CBRE said that public housing projects had suffered from ‘inertia’ since announcements were first made in 2011, but this was being addressed by taking land allocated for housing from municipalities and putting it directly into the hands of the Ministry of Housing.
In the meantime, private companies are forging ahead with plans to provide new homes in what is being dubbed “a land of opportunity.”
The country’s housing minister Dr Shuwaish bin Said al-Dhuwaihi has signed eight contracts worth $1.06bn to develop 26km2 of land across the Kingdom. And one major developer working in Saudi is private equity investor Gulf Capital which has negotiated a $120m loan with the country’s National Commercial Bank.
This has enabled its property division, Gulf Related, to initiate two major housing projects in Riyadh – Saudi Arabia’s fastest growing city.
Emile Habib, director, said: “Saudi Arabia did not experience the downturn in the economy which the rest of the world experienced in 2007 onwards because of its oil revenue. It is now starting to spend that money.
“Massive construction projects for housing, facilities and infrastructure are underway.
“These are also being funded by private investors who have money stored away and would prefer to invest in bricks and mortar rather than banks which will not offer such attractive returns.
“Saudi Arabia is a land of opportunity when it comes to new real estate, especially as the government is quick to release permission for building projects and has made mortgages far easier to obtain – as borrowers can obtain cash using their homes as security.
“The Saudi population is young, 65% are under 25. Therefore the demand for new homes is enormous as people move away from their parents and start their own families. In the next five years it is expected to be up to a million new units. That is 200,000 a year.
“The supply side is much smaller and not able to cope. That is why we see developers getting into the market.”
Gulf Related identified an opportunity to develop in 2009. It acquired two plots of land to develop in Riyadh - one for expats and one for locals.
There is a tremendous demand for expat housing and a waiting list which can be 12-18 months long. Average rents and values for housing have continued to rise even as other markets in the GCC experienced declines.
Habib said: “We are building a compound for expats which contains 525 units. These are 1, 2 or 3 bedroom homes, townhouses and villas. Alongside are community facilities such as gyms and swimming pools.
“When people think of expats, it is usually westerners who come to mind. But in Saudi Arabia, Arab expats outnumber them by about 60-40 %. In the main, they are from Lebanon, Syria, Jordan and Egypt and attracted by the boom in construction and infrastructure projects – such as the new Riyadh Metro and the new schools, hospitals and sports facilities the government has authorized.
“Typically, these people would be working as middle managers in banks, in investment companies or in the construction work itself.
“It is the norm that around 25-30% of a person’s – expat or Saudi - salary is used to fund accommodation. This is just the market practice. So we look at pay structures and construct our homes accordingly.
“When expat homes are being constructed, they will mainly be for rental whereas for the national market the emphasis is on buying.
“And the main demand is home-grown.”
Habib said his company had identified best practice when it comes to providing the housing locals want – and also spotted some increasing “western-style” trends.
“Saudis like to buy land and then either build their own homes or have someone build it to their exact specifications,” he said.
“At first we would show them our own schemes, but that did not prove to be as popular as giving them the opportunity to have their own bespoke place, so that is what we do.
“This national (local’s) housing requirement also sees certain trends that are emerging among Saudis, especially the younger ones. They want to be part of a community and have amenities close to hand. Many have travelled to other countries and realised the benefits of having facilities close at hand rather than live in a more isolated building.
“Vertical communities are also becoming more popular – five or 10 years ago this would have certainly not been the case. But taboos – such as that of men and women living in close proximity to one another – are gradually being loosed. People are pushing the envelope slowly, but surely. This is to be very much welcomed.”