By Asma Alsharif
Absence of a mortgage law in the Kingdom also hindering bank lending for developers.
Complicated bureaucracy and tight lending conditions are deterring foreign real estate developers from entering the Saudi Arabian market, developers said at a real estate event in Jeddah.The Saudi real estate market, expecting to need 1 million new homes by 2015, was seen as offering a golden opportunity for developers in neighbouring Gulf countries, who saw a halt in development projects after the financial crisis. But that demand has yet to be met.
"There are not enough developers in Saudi and not enough developers from abroad coming here ... They have come, but in my opinion, only a few have come," said Omar Al Kadi, president of Saudi's Injaz Development Company.
Abu Dhabi-based developer Gulf Related blames long and tedious bureaucratic measures for the wavering interest by foreign firms.
"Getting permits and approvals from the local authorities ... [takes] anywhere from four months to a year and a half when it typically should be about a month, maybe three if it is a complicated master plan," said Emile Habib, managing director of Gulf Related.
"You need to know people inside and need some push to get things done ... investors and developers will not wait a year and a half on their money to find an opportunity," Habib said.
While Saudi Arabia is one of the countries least affected by the global financial crisis, promising to spend $400 billion on infrastructure projects to stimulate the economy, international developers are facing difficulties in funding their projects.
"It is very difficult to be an international player and get gearing because the banks don't know who you are," said Craig Cowie, managing director of Al-Rajhi Capital Real Estate.
The absence of a mortgage law is also a factor that hinders bank lending for developers, he said.
"Lending is technically unsecured [in Saudi] because there is no mortgage law. So it is tough for a new entrant into the Saudi market or an unknown entity in Saudi to get debt."
Others believe that excessive financing that is going toward government projects is draining the liquidity of Saudi banks which do not give a priority to the private sector.
"The government is crowding out the market for borrowing money, they are coming and taking big chunks of money that is available for lending and leaving very little money for the private investors," Habib said.
The anticipated Saudi mortgage law, to be complete by the first quarter of this year, is expected to help make the Saudi real estate market more mature and make it easier for local and international developers to carry out their business, but more needs to be done, developers said.
"The real estate market is still relatively fractured and it needs to develop into something a little more sophisticated domestically before internationals can really play a meaningful role," Cowie said.
"The international operators will continue to struggle. I think the mortgage law will help ... but it is going to take time."