British *News of the World*: Saudi Arabia Has Become the Preferred Destination for Developers and Real Estate Companies in the Middle East
• The real estate boom is driving strong and steady growth in the construction sector
• The Kingdom has the largest and most important real estate market in the Middle East
• Experts: Need to establish a bank specializing in real estate project financing and an agency to regulate land prices
• International Institution: Outlook for the real estate sector is very encouraging and strong in 2014
• 117 billion riyals in annual real estate financing... and construction growing by 9.51%
• Housing demand is projected to reach 3.1% by 2017
Exclusive — Amlak — Ahmed Al-Shimi
The British newspaper News of the World (NEWS OF THE WORLD) that the construction sector in the Gulf Cooperation Council (GCC) countries in general, and the Kingdom of Saudi Arabia in particular, is maintaining its continuous growth and stability, due to the real estate boom and massive urban development currently taking place in the Kingdom.
The newspaper added that massive government projects—whether in infrastructure, transportation, or the housing sector—have made the Saudi real estate market one of the most important and largest in the Middle East, amid the government’s efforts to open the door for domestic and foreign developers and investors to enter the real estate sector.
Rising Population Growth Rates
According to Standard & Poor’s, the Kingdom needs to build 200,000 housing units annually, particularly given rising population growth rates, and consequently rising demand for real estate loans, as the population of major cities such as Jeddah, Riyadh, and Dammam is expected to increase by between 52% and 581% by 2025, therefore, there is an urgent need to regulate real estate financing and establish mechanisms to encourage the lending market, which is set to grow significantly.
The real estate market is expected to see new regulatory measures and mechanisms, such as the regulation of the rental process and the establishment of mechanisms for mortgage eligibility, These steps complement previous initiatives to address the housing crisis, including the enactment of mortgage laws, the establishment of a Ministry of Housing, and government programs encouraging citizens to own homes.
However, experts are calling for the establishment of a bank specializing in financing new housing projects and the appointment of an agency to regulate land prices in a way that prevents manipulation. These steps would help alleviate the housing shortage, while simultaneously encouraging developers and private companies to invest in the real estate sector.
Real Estate Stability in 2014
A report by the U.S.-based “SBWIRE,” which specializes in assessing the economic and real estate business environment in Middle Eastern countries, states that the outlook for the Saudi real estate sector in 2014 is stable and very encouraging, with rental rates in Jeddah expected to decline and a slight drop in office prices in the capital, Riyadh, adding that the commercial real estate market will suffer from an oversupply compared to demand, which is seeing a slight decline. The report commends the government’s steps to resolve stalled real estate projects, whose market value exceeds 5 billion riyals.
The report added that rental rates in Riyadh will not see significant change, but the office sector may decline by 31% during the current year, while rents in Jeddah will rise by 51%, for both residential apartments and offices, emphasizing the increase in financial returns in the real estate sector in general.
Real Estate Financing
Economic estimates point to tremendous growth in investment rates in the real estate sector; in mid-2012, it reached approximately 900 billion riyals, but it is expected to exceed 2 trillion riyals this year, underscoring the strong growth of this sector, and its continued capacity to absorb further investments, particularly given the high demand for residential units and the Kingdom’s need to build 4.5 million residential units by 2020.
This, in turn, has led to real estate financing reaching approximately 117 billion riyals annually, to develop an estimated 110 million square meters of undeveloped land, which is driving the construction sector to achieve an annual growth rate exceeding 9.51%.
In the same context, the U.S.-based “Business Wire” confirmed that the Kingdom has succeeded in attracting massive investments to the real estate sector, and has become a preferred destination for real estate development companies in the Middle East, noting that there are a number of factors driving the growth of the real estate market, most notably government stimulus measures and the growing demand for housing, which is expected to grow at a compound annual growth rate of 3.11% during the period (2014–2017).
The institution continued in its report that there is a noticeable trend among citizens toward affordable housing that is commensurate with middle- and low-income levels, which has prompted real estate development companies to enter this housing segment to capitalize on the growing demand for it.
Real Estate Market Structure
The newspaper concludes its report by noting that the real estate market structure has undergone transformations since 2005, most notably the involvement of the private sector in major real estate projects. Although the government still holds the largest share of real estate activity, its strong presence sends a reassuring message to private institutions, encouraging them to make more secure investments in this sector. This generates a diverse range of real estate products that benefit citizens across all income levels.
