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Dar Al Arkan expects good growth despite low oil

RIYADH, November 2, 2015

Saudi Arabia's Dar Al Arkan Real Estate Development Company thinks it can keep growing next year despite low oil prices, as the government prioritises spending on housing and tries to increase the private sector's role in ending a shortage of homes.

Overall growth in government expenditure is widely expected to slow or even go into reverse next year as the world's largest oil exporting country grapples with a huge state budget deficit caused by cheap oil.

But the housing industry may escape cutbacks as authorities have said they will not cut "essential" spending. Supply of housing lags demand because of rapid population growth and slow progress in government building programmes due to red tape and difficulties obtaining land.

While government data shows home ownership among roughly 21 million Saudi citizens at 60 per cent, the International Monetary Fund has estimated that excluding people living in "traditional" housing, the rate is 36 per cent.

"We are optimistic regarding the attractiveness of the Saudi real estate market over the coming years, and that the company will deliver growth and better performance in 2016 despite the current uncertainty," said Dar Chairman Yousef Al-Shelash.

"Although the government is rationalising spending on some projects and is trimming other expenses, providing housing projects remains a top priority for development and government spending," he added in an interview at the Reuters Middle East Investment Summit.

Dar, one of the kingdom's biggest listed developers, has built more than 18,000 housing units and has a land bank of 30 million square metres in Jeddah, Makkah, Riyadh and Eastern Province.

Dar focuses mainly on developing basic infrastructure on undeveloped land and selling such land. To insulate itself from the volatility of the Saudi market, it wants to obtain more revenue from leasing housing and commercial units.

A new administration appointed by King Salman, who took the throne in January, has shown signs of taking a more dynamic, private sector-oriented approach than its predecessor.

Majed Al Hogail, former managing director of Rafal Real Estate Development Co, a private firm owned by Saudi family interests, was chosen by Salman in July to head the housing ministry.

"The new minister is aware of the sector and developers' problems -- he knows it is a supply problem, not demand, and is working on facilitating more supply into the market," Shelash said.

Local media have quoted Hogail as saying the market needed 1.5 million housing units to meet demand, and that the ministry would stop trying to develop projects by itself and enlist the cooperation of the private sector.

Shelash said his company and other private developers were discussing projects with the ministry, adding that the ministry planned to establish a body to grant project approvals to developers swiftly. In the past, obtaining approval could take years.

"I expect when developers' financing problems are handled and when development procedures are facilitated, the market will be in a much better condition than it was when oil prices exceeded $100," Shelash said.-Reuters




Tags: Saudi | real estate | Dar Al Arkan |

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