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Sat 22 Feb 2014 02:47 AM

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The vicious circle of Saudi Arabia’s housing market

With the kingdom’s population now projected to add another 7 million people by 2020, this problem has the potential to get a whole lot worse, says Ed Attwood

The vicious circle of Saudi Arabia’s housing market

Last week, the Saudi population hit 30 million for the first time. It is both the kingdom’s greatest resource and its biggest headache. Why? Finding homes for the less-well-off parts of society (i.e. the bulk) is proving tough. Back in 2011, King Abdullah reacted to revolutions in other parts of the Arab world by unveiling a series of colossal social spending packages, worth $130bn. Just over half of that sum ($67bn) was allocated to building affordable homes for Saudis, at least 60 percent of whom don’t own a house.

The numbers looked ambitious at the time. Half a million new homes were promised, on top of 1.1 million that were already in the works. A new Housing Ministry was even set up to ensure the process went as smoothly as possible.

So where we are now? Three years on, the needle has barely moved. A recent opinion piece in Al Hayat points out that the Housing Ministry’s loan policies had actually created even more demand for homes, while the agency had almost completely neglected its duty to get more houses built.

Within the kingdom itself, confidence in the Housing Ministry appears to be at rock bottom. In the whole of last year, the agency awarded residential housing contracts worth just $3bn. By comparison, Dubai developer Emaar alone gave out $1.6bn worth of work in the country during the same period. When I asked a Saudi working in the construction industry last year how he thought the ministry had performed since its launch, his immediate response was to laugh. A January announcement from the ministry about yet another new plan to bring in more affordable homes was greeted with derision on social media.

Aggravating the situation is the fact that most of the prime plots of land in Saudi Arabia’s biggest cities are owned by members of the country’s elite. This has resulted in a vicious circle. The kingdom’s wealthiest individuals see the land as a long-term investment, and see no reason to actually develop the land at great expense. As affordable housing is just as expensive to build as luxury housing, as well as being less lucrative, there’s certainly no incentive to build the kind of homes that Saudi Arabia really needs.

Meanwhile, growing demand means that the cost of land that is actually available to private developers is rising rapidly. In the vast majority of cases, it’s now impossible for even the private developers to make any money building affordable homes either. Of course, booming land prices spell good news for the wealthy landowners back on the other side of the fence, who are happily making a small fortune while doing absolutely nothing. The rich get richer, the developers shrug their shoulders, and the low-income and middle-class Saudis are left in the lurch.

To be fair, the housing minister is in something of a bind. Last year, Shuwaish Al Duwaihi said that urban land left undeveloped could be confiscated “in a limited way”. It was a good soundbite and in theory, expropriation sounds like the perfect solution. But when push comes to shove, I can’t see too many people volunteering to tell Saudi Arabia’s most influential people that they’re going to have to forfeit what they see as their birthright. Even a proposed tax on unused land has failed to materialise. It’s hard to escape the notion that the ministry is clutching at straws, veering from one measure to another in an attempt to solve the crisis.

Where does this all end? No-one knows, to tell the truth, but the cycle has to break somewhere, and I suspect it won’t be pretty when it does.

And with Saudi Arabia’s population now projected to add another 7 million people by 2020, this problem has the potential to get a whole lot worse.

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Hal-Luke Savas 6 years ago

It is no secret.. to solve Saudi housing problems the houses must be built like cars, in light gauge steel; that would build fastest homes to attractive designs as well as provide employment. Current -sought- construction cost rate of circa $350M2+land costs is unsustainable and unattractive. In addition new homes are best built on cheap, out of town lands, similar to Garden Towns in Europe.