• The hotel and hospitality sector is expected to grow by 20% this year
• The real estate sector contributed 7.2% to Saudi Arabia’s gross national product at the end of 2013
• Saudi Arabia to welcome 15.8 million tourists by 2014
• Real estate investment in Mecca grew by 45% last year
Written by: Ahmed Al-Shimi
Exclusive — Amlak
The British newspaper *News of the World* confirmed that the real estate sector in the Kingdom of Saudi Arabia is on the verge of a major boom and will achieve tremendous growth rates, especially with the imminent implementation of mortgage mechanisms and the execution of a vast number of residential projects, as well as the growth of the hotel, hospitality, and religious tourism sectors, which are expected to contribute to the sector’s growth by at least 20% this year.
Real Estate… Hospitality… Tourism
Perhaps that is why the Jeddah Cityscape 2013 exhibition—now in its fourth consecutive year—took on special significance, addressing fundamental and vital issues in the real estate sector, and saw massive international participation. Over the course of three days, it discussed numerous real estate issues, including exploring opportunities for local and foreign investment in the Saudi real estate market, which is characterized by liquidity and high consumption rates compared to other GCC countries.
The hospitality sector is among the most important sectors expected to experience a significant recovery in the near future, particularly with the Saudi government’s support for investment opportunities in religious tourism. The Kingdom is expected to welcome 15.8 million tourists by 2014, and achieve growth rates in the number of incoming tourists ranging from 6 to 8% over the next five years, Although Makkah is one of the most expensive cities in the world in terms of real estate and land prices, it has become one of the world’s most attractive cities for investment.
Growth in Real Estate Investments
Data released by the Real Estate Committee of the Makkah Chamber of Commerce and Industry indicates that real estate investment in Makkah alone grew by 45% last year (2012), compared to 55% across various regions of the Kingdom, as a result of major expansions at the Grand Mosque, railway projects, and the completion of the Jamarat Bridge. Mecca is expected to attract nearly 50% of the Kingdom’s total real estate investments by the end of this year, 2013.
The Kingdom of Saudi Arabia is one of the largest real estate markets in the world, with a real estate market value of 2 trillion riyals. It needs to build 4.5 million housing units by 2020, and 110 million square meters of residential land, at a total annual cost of 117 billion riyals. Meanwhile, Jeddah will need 1 million housing units by 2020, particularly as demand there rises to 100,000 units annually.
Experts are calling for the establishment of a supreme real estate committee to regulate the real estate market, resolve all disputes within it, and develop specific and clear mechanisms to increase the real estate sector’s contribution to the gross national product.
Positive Performance
Despite the severe shocks that have hit the real estate sector in various countries around the world as a result of the financial crisis that struck the United States from 2007 and 2012—the effects of which are still felt in certain vital sectors in Europe, particularly the banking sector—the Saudi economy, despite its integration into and status as a key component of the global economic structure, was affected only to a limited and negligible extent, and the outlook for the Saudi real estate sector remains positive.
While the global economy is experiencing a notable slowdown, demand for real estate remains strong in the Kingdom, where 38% of the population is under the age of 14, and the average age in the Kingdom is 71, compared to 43 years in Germany and 53 years in Japan, underscoring the need for the Kingdom to take measures to provide housing that meets the needs of its large youth population.
Rising Real Estate Prices in the Kingdom
A study conducted by C.B.RECHARD ALEX shows that real estate prices in the Kingdom have risen at rates exceeding population growth, with a greater focus on high-end real estate suitable for high-income earners, while the provision of affordable housing for middle- and low-income earners remains the main problem.
Furthermore, the ratio of rent to monthly income has risen to 40% in Saudi Arabia, while the ratio is less than 30% in Europe and North America, indicating that rent consumes a significant portion of citizens’ income, highlighting the urgent need to regulate the real estate market and set rent caps, particularly in cities where rent rates rise significantly each year.
58 Real Estate Investment Funds
The Capital Market Authority is taking steps to revitalize the real estate sector, having recently announced the existence of approximately 58 real estate investment funds, while the Ministry of Commerce is working to resolve the issue of stalled real estate investments. The real estate sector is expected to contribute 7.2% to the gross domestic product.
These and other steps reflect a genuine desire and tangible efforts by the authorities responsible for the real estate sector in the Kingdom to provide mechanisms for real estate financing and create opportunities for a recovery in real estate investment—steps that will bear fruit and yield results both now and in the near future.
