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Saudi real estate sector ‘set for major surge’

Riyadh, August 8, 2011

With more than $36 billion of foreign direct investment (FDI) and over $500 billion of real estate projects already under way, Saudi Arabia’s property sector is on the verge of major surge, said a top industry player.

The recent spate of developments in the Saudi Arabian real estate sector are fueled by a robust economy of the kingdom, and backed by huge revenues from the oil sector leading to excess liquidity. More importantly, one of the major boosts to the sector is the liberalization of property laws within the kingdom.

As per industry expectations, the real estate sector’s annual growth is expected to be maintained between 2011 and 2015 along the same rate.

For its part, the Saudi Arabian government has helped the cycle of growth through diversification. This has helped in generating credit facilities and real estate investments, leading to more construction and ultimately the demand has led to a huge growth in the real estate sector.

One of the main drivers of the real estate market surge is the size and rapid growth of population in Saudi Arabia.

The kingdom has been among the fastest growing countries globally in terms of population over the past decade. As a result, Saudi has a very young demographic profile, with around 45 per cent of the population currently aged between 20 and 25 years. This young age profile and the rapid urbanization have been the major demographic factors driving the real estate market.

Saudi Arabia has the largest real estate market in the GCC states, with more commercial (office, retail and residential) floor space than all of the other GCC countries put together.

The current stock of commercial space is planned to increase manifold with the residential sector also poised for significant growth. Several businessmen and real estate investors have moved to buy plots of lands to build residential apartments. This has also prompted several real estate investors and businessmen to join hands in building apartment blocks and sell flats under a lease programme ending in ownership.

Although the Kingdom is witnessing huge developments in the construction sector, the housing market still suffers from a large demand-supply gap due to the rapid expansion of the expatriate community along with the domestic community and rapidly declining household sizes.

“The Saudi housing market offers enormous potential for growth as it unlocks its potential. Housing is primarily driven by domestic drivers of demand,” said Fahed Bin Mohammad Al Moutawe, CEO of Ewaan Global Residential Company, a leading real estate development company in Saudi Arabia.

“Young Saudis are in search of affordable housing throughout the country which remains under-supplied. However important steps are taken by the government to address supply mismatches.”

Under the new Saudi Arabian Law, foreigners are now entitled to allow a 100 per cent ownership of real estate properties in the kingdom. This allows for a more influx of funds and investment into the country and helps further the development of real estate industry in the country.

Moreover, the majority of the kingdom's populace does not have their own houses and live in rented accommodation. As a result, Saudi Arabia will need to construct over 1 million houses by 2014. This demand could further escalate if the mortgage law to ensure easy financing gets its final approval.

“The mortgage condition will certainly be key to prospective market growth. With this mortgage law, prospective buyers will be integrated in the target market and consequently, the potential of the residential real estate will get bigger in Saudi Arabia,” said Al Moutawe.

“This will on the contrary change the decreasing investment trend seen during the past decade. Particularly, Jeddah and Makkah are likely to record much higher growth levels than the other cities of the Kingdom, largely because of the current pent-up demand,” he added.

With the growing needs of a young population, the housing market in Saudi Arabia has shifted its focus from palaces and luxury villas to the needs of a changing society. With a population of more than 27 million, the kingdom is the most populated country in the Gulf.

Demand for housing surpasses the supply and in the coming years, demand for affordable housing will go on outstripping for luxury villas as the majority of the population have enough money for housing units in the range of SR0.8 million ($213,000) and SR3.5 million. – TradeArabia News Service




Tags: Saudi Arabia | Construction | real estate | Housing | population |

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