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GHA – Housing Market Landscape Assessment Report
Development of Business Model & Implementation Housing Regulation Project
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TABLE OF CONTENTS
1 INTRODUCTION...... 6 1.1 SNAPSHOT OF SAUDI ARABIA ...... 7 1.2 ABOUT GHA ...... 10 1.3 THE HOUSING REALITY :...... 12 1.4 HOUSING HISTORY IN SAUDI ARABIA ...... 14 1.5 HOUSING HISTORY FROM CITIZENS ’ PERCEPTION ...... 16 1.6 DEVELOPERS ’ POINTS OF VIEWS ...... 17 2 MACROECONOMIC STUDY AND TRENDS AND CORE HOUSING INDICATORS ...... 21 2.1 MACROECONOMIC OVERVIEW ...... 22 2.2 DEVELOPMENT OF ECONOMIC CITIES ...... 23 2.3 INFLATION AND INTEREST RATES ...... 24 2.4 BUDGET ...... 24 2.5 WORKFORCE ...... 24 2.6 MACROECONOMIC & DEMOGRAPHIC ...... 26 2.7 HOUSING MARKET INDICATORS ...... 27 2.8 CONCLUSION ...... 30 3 CURRENT GOVERNMENT SOCIAL/AFFORDABLE HOUSING POLICY ...... 31 3.1 AFFORDABLE HOUSING & SOCIAL HOUSING : ...... 31 3.2 CURRENT STATUS ...... 32 3.3 DESCRIPTION & PROFILE OF SOCIAL /A FFORDABLE HOUSING PROGRAMS ...... 33 3.4 DESCRIPTION & PROFILE OF SOCIAL /A FFORDABLE HOUSING PROGRAMS BENEFICIARIES ...... 33 3.5 GENERAL FUNDING ARRANGEMENTS ...... 35 3.6 CONCLUSION AND LESSONS LEARNED ...... 35 4 HOUSING STAKEHOLDERS...... 36 4.1 STAKEHOLDERS ’ DEFINITION : ...... 36 4.2 STAKEHOLDERS ’ GROUP : ...... 36 4.3 STAKEHOLDERS ’ HIGH LEVEL DESCRIPTION & THEIR CURRENT ROLE ...... 37 4.4 GOVERNMENTAL BODIES ...... 38 4.5 PUBLIC AGENCIES ...... 41 4.6 THE PRIVATE SECTOR ...... 42 4.7 CHARITY & NON -PROFIT ORGANIZATIONS ...... 43 4.8 STAGES OF BUILDING STAKEHOLDER COMMITMENT ...... 44 5 HOUSING DEMAND – DEMOGRAPHIC AND SOCIO ECONOMIC INFLUENCES (CURRENT AND EXPECTED)...... 45 5.1 DEMAND ANALYSIS ...... 46 5.2 HOUSING CHARACTERISTICS : ...... 50 5.3 URBAN AGGLOMERATIONS ...... 51 5.4 IMPORTANT METROS FOR FUTURE DEVELOPMENT ...... 51 5.5 HOUSING SHORTAGE ...... 53 5.6 MAIN PROVINCES ...... 54 5.7 PEOPLE PREFERENCES TO HOUSING ...... 55 5.8 HOUSING PREFERENCE BY AGE ...... 56 5.9 HOUSING PREFERENCE BY LEVEL OF EDUCATION ...... 56 5.10 HOUSING PREFERENCE BY INCOME ...... 56
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5.11 HOUSING PREFERENCE BY GEOGRAPHIC LOCATION ...... 57 5.12 SUMMARY OF DEMAND ESTIMATES ...... 58 6 HOUSING SUPPLY AND DEVELOPMENT (CURRENT AND EXPECTED)...... 61 6.1 QUALITY OF HOUSING ...... 67 6.2 SAUDI ARABIA ’S BUILDING CODES ...... 67 6.3 HOUSING CONDITIONS ...... 69 6.4 NEW HOUSING SUPPLY & PLANS ...... 70 6.5 LAND AVAILABILITY & PRICES ...... 74 6.6 CONSTRUCTION RELATED COST ...... 75 6.7 VOLUME OF HOUSING CONSTRUCTION ...... 76 6.8 HOUSING MARKET SUPPLIERS ...... 78 6.9 CHARITY & NON -PROFIT ORGANIZATIONS SECTOR ...... 79 6.10 RESALE (SECONDARY ) HOUSING MARKET ...... 83 6.11 RENTAL HOUSING MARKET ...... 84 6.12 ROLE OF REALTORS /B ROKERS ...... 84 6.13 ROLE OF APPRAISERS ...... 85 6.14 SUMMARY OF CHALLENGES & GAPS ...... 85 6.15 CONCLUSION ...... 86 7 HOUSING AFFORDABILITY ANALYSIS...... 88 7.1 AFFORDABILITY ANALYSIS IN EFFECTIVE DEMAND ...... 91 7.2 SUMMARY OF CHALLENGES & GAPS ...... 93 8 HOUSING FINANCE SECTOR...... 95 8.1 BANKING INDUSTRY INDICATORS ...... 96 8.2 ESTIMATED MORTGAGE SIZE IN SAUDI ARABIA ...... 101 8.3 POTENTIAL BOTTLENECKS FOR THE DEVELOPMENT OF HOUSING FINANCE ...... 101 8.4 SAUDI MORTGAGE MARKET ...... 102 8.5 FUNDING SOURCES OPTIONS ...... 105 8.6 BANKING SECTOR & FINANCING INSTRUMENTS FOR HOUSING PURCHASE & RENTAL ...... 107 8.7 FINANCIAL INSTITUTIONS SECTOR & FINANCING INSTRUMENTS FOR HOUSING PURCHASE AND RENTAL 108 8.8 CAPITAL MARKET ...... 111 8.9 SECURITIZATION ...... 112 8.10 REAL ESTATE DEVELOPMENT FUND ...... 113 8.11 RELEVANT GOVERNMENT CREDIT AGENCIES – SPECIALIZED CREDIT INSTITUTIONS ...... 115 8.12 PUBLIC PENSION AGENCY /O THER FUNDS OR PROGRAMS FOR HOUSING ...... 116 8.13 SUMMARY OF CHALLENGES & GAPS ...... 116 8.14 CONCLUSION :...... 117 9 LEGAL / REGULATORY FRAMEWORK...... 119 9.1 FRAMEWORK FOR ANALYSIS ...... 119 9.2 SOURCES OF NEW LAND ...... 120 9.3 REGIONAL AND MUNICIPAL PLANNING AND LICENSING ...... 121 9.4 OWNERSHIP OF LAND ...... 122 9.5 FINANCING ...... 122 9.6 RENTING ...... 123 9.7 FINANCIAL ASSISTANCE FOR LOW INCOME RESIDENTS ...... 124 9.8 EXISTING AGENCIES ...... 124 9.9 REAL ESTATE DEVELOPERS AND OTHER EXPERTS OPINION ON THE LEGAL FRAMEWORK ...... 124 9.10 HOUSING RELATED LAWS AND REGULATIONS (S AUDI REAL ESTATE OWNERSHIP LAW ) ...... 125
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9.11 THE BUILDING CODE ...... 125 9.12 HOUSING FINANCE LAW AND REGULATION ...... 125 9.13 CONCLUSION ...... 126 10 APPENDIX ...... 127 10.1 GENERAL POINTS OF VIEW OF LOCAL HOUSING EXPERTS ...... 127 10.2 BARRIERS TO THE HOUSING SECTOR GROWTH :...... 129 10.3 BOTTLENECKS TO THE HOUSING MARKET ...... 129 10.4 GENERAL MACROECONOMIC INDICATORS ...... 130 10.5 UPCOMING PROJECTS ...... 131 10.6 MAJOR DEVELOPMENTS SCHEDULED FOR COMPLETION – RESIDENTIAL SEGMENT ...... 136 10.7 HOUSEHOLD OCCUPANCY , BY TYPE AND TENURE ...... 139 10.8 DEVELOPERS IN THE PRIVATE SECTOR ...... 149
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1 INTRODUCTION The housing market in the Kingdom of Saudi Arabia has been well dwelt upon, but unfortunately not from a holistic approach. The rise of the housing issues, increasing population, and the constitution fabric of the population (with almost 58% of the population below 24 years of age in 2007) necessitate a different approach in order to properly assess the main issues at hand.
Until recently, the only complete study made was the 2004 census which by its own does not cover the housing sector per say. Most remaining studies were spearheaded by the private sector, for specific requirements and mainly covering main cities (or a specific city’s) micro level studies.
Due to the above, a pressing need came up to properly assess the housing market and identify what are the core issues that need to be addressed, what are the expected solutions, which kind of initiatives must be taken, who should assume ownership of each initiative, and whether the government should spearhead this initiative, and if so, by which government body, if any.
It comes to no surprise that till date, there is still lack of regulations to streamline and organize the housing sector. The building code is still being revised and not imposed on developers/contractors/construction companies, classification of the developers and contractors is still absent for the private sector, sporadic small developers still form the largest market share of housing construction builders that contribute to the erratic building, urban planning though started to take effect is still at its early stages of development, and the efforts made to organize the urban/rural planning is made at city level and not at the national level (e.g. High Commission for the Development of Riyadh City…).
There is also lack of policies and procedures to clearly identify who does what and when for most of the stakeholders in the housing market: on one hand there are too many government ministries and agencies that have a direct and indirect effect/control on the market, on the other hand, builders/contractors/developers, and even financers (especially the non bank finance institutions) as well as non profit organizations still need to be organized and function as one big entity.
Nonetheless, the picture is not all gloomy. The Kingdom of Saudi Arabia witnessed unprecedented development that came hand in hand with the government efforts to sustainably develop the entire economy with all its segments and social impacts at different levels.
One initiative in specific was the establishment of the General Housing Authority by royal decree in 2007 to streamline the housing market, help regularize it, coordinate the public private entities efforts in this sector, and increase the proper quality housing ownership of the Saudi population, hence enhancing the quality of life of the citizens.
Given the above, the Saudi Housing Landscape Report serves as a market assessment of the housing sector in the kingdom from both a historical and current perspectives to address the various issues that are facing this growing and crucial sector for the sustainable growth of the economy as well as promoting social welfare.
In addition to the above, this report will serve as a guideline for the GHA and housing experts in identifying the main components, strengths, weaknesses, and needs of the housing market and how to develop a feasible and flexible business model for GHA along with relevant policies and procedures that would be part of the overall strategy of the government in the housing sector and part of the implementation plan thereto.
For the reader’s kind reference, the following section provides a high level snapshot of the kingdom of Saudi Arabia main demographic and geographic characteristics.
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1.1 Snapshot of Saudi Arabia The Kingdom of Saudi Arabia is one of the biggest Arab countries in the MENA region by size, and the most populated in the GCC countries.
With the oil exploration and government 5 year plans (now we are at the end of the 8 th development plan), the country has witnessed a vast and swift modernization whereby the population enjoyed a far better health care, education system, and expanded infrastructure and services.
The following table gives a micro level snapshot about the country with its general indicators:
Basic Data
Land Area: 2.15 million sq. km Population: 25.5 million (EIU 2009 estimates) Key Provinces: Population in ‘000 (2004 census, Ministry of Economy and Planning): Riyadh (4,730) Mecca (5,449) Eastern (3,009) Asir (1,637) Medina (1,379) Jizan (1,083) Qassim (980)
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Table No.1 – Saudi Population by Region (2004)
Region Saudi Males Saudi Females Total Saudis
Riyadh 1,902,087 1,824,436 3,726,523 Mecca 1,792,752 1,793,813 3,586,565 Al Madinah 565,786 578,403 1,144,189 Al Qassim 407,421 410,071 817,492 Eastern Region 1,308,845 1,246,621 2,555,466 Asir 698,114 736,645 1,434,759 Tabouk 306,115 288,476 594,591 Hail 219,711 231,936 451,647 Northern Frontier 119,511 119,820 239,331 Jazan 484,512 509,163 993,675 Najran 173,356 175,333 348,689 Abha 153,107 175,136 328,243 Aljouf 154,345 153,787 308,132 Total 8,285,662 8,243,640 16,529,302 Source : Atlas 2004 based on census of 2004
Table No.2 – Non-Saudi Population by Region (2004)
Region Non-Saudi Males Non-Saudi Females Total Non-Saudis Riyadh 1,220,550 508,290 1,728,840 Mecca 1,425,273 786,133 2,211,406 Al Madinah 245,948 121,939 367,887 Al Qassim 157,578 41,686 199,264 Eastern Region 602,598 202,039 804,691 Asir 198,285 55,324 253,609 Tabouk 73,852 23.074 96,926 Hail 58,369 17.017 75,386 Northern Frontier 30,111 9,844 39,955 Jazan 128,521 63,943 192,464 Najran 51,591 19,177 70,768 Abha 38,107 11,389 49,496 Aljouf 40,815 12,729 53,544 Total 4,271,598 1,872,638 6,144,236 Source : Atlas 2004 based on census of 2004
Table No.3 – Saudi & Non-Saudi Population (2004)
Group Total Saudi Males 8,285,662 Saudi Females 8,243,640 Non Saudi Males 4,271,598 Non Saudi Females 1,872,638 Grand Total 22,673,538 Source : Atlas 2004 based on census of 2004
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Table No.4 – Demographic Trends
Category Year KSA 1975 7.3 Total Population (Million) 2005 23.1 2015 29.3 1975 – 3.9 Annual Growth Rate of population (%) 2005 2005 – 2.1 2015 1975 58.3 Urban Population (ratio to total) 2005 81.0 2015 83.2 Population below 15 years (Ratio to total) 2005 34.5 2015 30.7 Population of 65 years and over (Ratio to total) 2005 2.8 2015 3.3 1970 – 7.3 Fertility rate (infant per woman) 1975 2000 – 3.8 2005 Infant mortality rate (per 1000 infants) 1970 118.0 2005 21.0 1970 – 53.9 Life expectancy 1975 2000 – 71.6 2005
Source: SAMA 44 th Annual Report – 2008, Central department of statistics and information (Ministry of Economy and planning), and Human Resources development report of 2006, UN development program)
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1.2 About GHA The Kingdom of Saudi Arabia is facing an increasing demand for houses from its population. The supply is still insufficient to fill in the gap of real demand not to mention the future requirements. As a result, the government sought to finance the Saudi citizens to build their own home through the Real Estate Development Fund in addition to offering them pieces of land as grants. The private sector has also participated in building and financing housing units for various segments of the population with and without credit facilities/installment options.
In spite of all governmental efforts, ordinary citizens show signs of difficulties in bearing the costs of both buying the land and building houses on them, driving the majority to have long term rents, which, according to many experts lead the ownership percentage to far less than the previously expected above 40% rate. This noticeable decrease in home ownership came hand in hand with a decrease in the disposable income of families and an increase in the average housing rental prices and cost of construction.
Facing the above challenges, the Saudi government established in September 2007 by royal decree the General Housing Authority (GHA) with a mission to develop the kingdom's future housing strategy and establish low cost housing projects for the underprivileged.
The establishment of the GHA came as a legacy to the public housing project under the Ministry of Public Works and Housing. According to SAMA 2008 report, the Ministry of Social Affairs adopted the public housing project to build 66,000 residential units across the entire kingdom at a total cost of SAR10 billion over four phases. The first phase started in fiscal year 1426/1427H (2006) by building 16,000 residential units at SAR 2.4 billion. The second phase which started in fiscal year 1427/28H (2007) involved building 16,800 residential units at a cost of SAR 2.52 billion. The third phase was set to begin in fiscal year 1428/29H (2008) and it envisaged building 16,800 residential units at SAR 2.52 billion. Finally, 16,400 residential units were projected to be built at SAR 2.46 billion during the fourth phase in fiscal year 1429/30H (2009) – (source: SAMA Annual Report, 2008). However, not all of the announced has been executed to date. Further analysis would be required to fully understand what was the initial plan, what was executed, what was not, and the reasons for non execution, if any.
Driven by his royal highness King Abdullah Bin Abdulaziz given the seriousness of the housing market situation in the kingdom,; GHA will work on securing houses for citizens by easy profitless installments through an assigned initial budget of ten billion Saudi Riyals to that endeavor.
As per article (3) of GHA’s regulations, a major part of GHA responsibility and mandate is to aim at providing the appropriate home as per expedient choices of needs of citizens and according to programs planned by the authority. GHA’s main goals are to:
1. Facilitate for the citizen to obtain a home in which quality is considered within limits of his income at the appropriate time of his life. 2. Increase rate of possessing homes. 3. Encourage contribution of the private sector in supporting various housing activities and programs. 4. Raise the rate of various offered types of homes.
As such, the authority is also required by the Royal decree and its own founded regulation to perform the following tasks for the purpose of achieving its objectives:
1. Prepare, upgrade and develop the kingdom’s comprehensive housing strategies and escalate same to be accredited as per the followed regulation procedures.
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2. Propose laws, regulations, policies and organizations related to housing activity and propose amendments thereto, by whatever corresponds to national strategies approved in that concern, from such policies and statutes all what is related to : mortgage, rights of tenants, dwelling units holders, popular housing, public housing and developing land to establish housing projects thereon. 3. Put sufficient and various programs to provide the appropriate home for intermediate income brackets and below as per measurements and considerations stated in such concern which are defined by the authority. 4. Encourage the private sector to contribute in realizing housing objectives and strategies effectively in the kingdom. 5. Determine categories of those who deserve and benefit from programs of popular and charity housing. 6. Develop models of homes expedient to all categories of citizens, with specifications and standards which consider quality and cost to be guided by, considering code of approved building in addition to preparing instructions and forms of contracts which include rights and commitments of all parties. 7. Encourage establishing housing cooperation societies and coordinate their efforts and review projects of their statutes. 8. Build homes suitable for the needy and those ineligible to utilize government programs and private loans and financing. 9. Encourage charity institutions, individuals and companies to contribute in building charitable dwelling units suitable for the needy and present the consult and assistance when needed. 10. Prepare studies and researches related to housing. 11. Create a housing database. 12. Represent the kingdom in various housing related assemblies.
In addition to the above, article 11 of the regulation stipulated that:
1. Financial resources of the authority constitutes of the following sources: a. Credits allocated in the budget of the State. b. The financial return which the authority takes for services and undertakings which it presents according to provisions of the present organization. c. Donations, gifts, bequests and aids presented thereto. 2. Land which the Ministry of Social Affairs received in places where popular housing shall be established thereon, and also land allocated for grant shall be devolved to the authority
Given the above mandate and scope, the Authority (GHA) began carrying out its duties from four different angles:
1. Land grants through the state owned lands delegated to the Housing Authority in various areas and governorates to build housing units on. Such task is to be carried out in coordination with the Ministry of Municipalities and Rural Affairs and the trusteeship of areas and municipalities. 2. Oversee the design of housing units to be at low cost with better quality and ensure accurate implementation of such projects. 3. Provide financial support to construct above housing units through offering the design to the contractors for implementation. This is to be carried out in coordination with the Ministry of Finance to endorse the payments.
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4. Unify the regulating procedures of eligibility criteria to grant housing to the citizens from application stage to disbursement/offering of the unit. In a recent interview with Dr. Shewish Al Mutairy, Governor of the GHA, the Riyadh newspaper stated the following views of Dr. Shewish as follows:
1.3 The Housing Reality: As housing is considered one of the most troubling issues to the Saudi citizens, the government undertook several steps to address those concerns from the establishment of the Real Estate Development Fund (in the 1970s), to the former Ministry of Public Works and Housing, until the recently established General Housing Authority along with granting lands to the population.
The private sector had too a hand in assisting through financing, building and investing in the housing units in the real estate market.
Despite the importance of above efforts, the current situation is facing some considerable challenges, to name the most pressing:
1. Increasing volume of demand vis à vis the level of supply, 2. Low home ownership rate, 3. Rising of average cost of housing rent, 4. Low rate of average family income, and; 5. Rising cost of building houses. According to Dr. Al Mutairy, the situation requires a thorough investigation of the current status to understand the housing issues, their causes and solutions taking into consideration the elements of societal partnership (be it at the level of the governmental bodies municipalities, Ministry of Finance, Ministry of Economy and Planning, the General Housing Authority … or among the private sector in order to achieve the end goal: every citizen gets a suitable house that fulfills his living needs.
GHA approach will most likely address the main factors affecting the housing sector:
1. The housing components: land, infrastructure, financing, manpower, and building material 2. The suppliers: Self builders, developers and contractors 3. The demand group which includes the owners of houses and overall citizens GHA Goals:
GHA aims at providing suitable housing according to suitable options for the citizens' needs through developing programs by the authority. These include:
1. Facilitating getting easy access to good quality housing that is suitable to the citizen’s income at a suitable time in his life. 2. Increasing the rate of home ownership; 3. Encouraging the private sector to support the activities and the different housing programs, 4. Raising the rate of provided houses of different types (villa, apartment…), and; 5. Building suitable houses for the needy that are unable to make use of the government’s programs, nor are eligible to access financing from the private sector.
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Cooperation with governmental bodies:
GHA – through its limited number of engineers – is currently visiting various areas across the kingdom to identify and obtain the housing sites. Communication with MOMRA and trusteeship of municipalities has been made to determine the available areas of land which the authority needs during the first phase of implementation in every area and governorate.
The authority shall oversee the design and then implementation of the projects as soon as they obtain the required properties legally. The land plots are owned according to the following procedure: The assignment decree is passed by Prince Meteb Bin Abdul Aziz, Minister of MOMRA. The decree will then be passed to the area division which will work on the designs and drawings of the site, and then all is sent to the Notary Public in the governorate so that finally the title deed is registered as a GHA state property on behalf of the government.
It has been observed though that larger municipalities (such as Amanat Riyadh and Jeddah) play a more important role in the housing sector from providing building licenses to coordinating with the High Commission for the Development of Al Riyadh (in the case of Riyadh City for example). GHA would have a greater interaction with such large municipalities to clear out the plotted areas for housing projects.
Though red tape exists , whereby obtaining a clean title deed is time consuming 1, GHA has up to today’s date offered 1,691 housing units for implementation (including four boys schools, five girls schools, a kindergarten, seven local mosques, two big mosques, hospitals and infrastructure including water and electricity) in four governorates: Ahd Al Masareha in Jazan, Hafr Al Baten in the Eastern area, Al Qaryat in El Jouf and Ar'ar at the Northern borders.
The project work is assigned by public tender and is subject to the Ministry of Finance’s approval to disburse payments. Duration of the project will not exceed two years.
Additional 5,600 new housing units in a number of areas are being processed for authorization.
However, according to Dr. Ali Bahammam, a renowned professor and researcher on the Saudi housing market, the 8 th five year plan (set by the government) shows a deficit of over 1 million housing units, which is equivalent to 200,000 housing units per year. This number is expected to grow due to an increase in population. If we assume that the total housing units that are offered by GHA will be completed in four years, this translates to 1,823 completed units per year. This means that the chances of a family obtaining a housing unit are 1.1%.
Dr. Bahammam stated that according to the governor of the Housing Authority, until now no decision has been made regarding the mechanism that will be used to distribute the housing units among the Saudi families.
Source: Dr. Ali Bahmamam, Al-Eqtessadiya Newspaper (May 26th, 2009)
1 It is not clear up to today’s date exactly how many days the cycle would take to obtain a clean title deed. Generally, if it is a direct buy sell between two parties, it would take anywhere from one day up to 14 days, depending on the complexity of the transaction and whether there are any complications. However, in the case of GHA obtaining unmarked land, issuance of a clean title deed might take at least few months to obtain (if not more). The reason is that the request would pass through several ministries for clearing (e.g. Ministry of Agriculture and Ministry of Petroleum and Mineral Resources to ensure that the unmarked land does not fall under a project to utilize such land for agricultural or oil excavation purposes …).
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1.4 Housing History in Saudi Arabia In a study entitled “Identity in Transitional Context: Open Ended Local Architecture in Saudi Arabia”, Dr. Al Naim stated that historically, Saudi Arabia has experienced drastic urban changes since the late 1930s until the present day.
Originally, Saudi Arabia consisted of several traditional societies. Despite the fact that these societies shared the same source of values, which is the Arabic Islamic culture, each region still had specific social and physical characteristics. The physical environment has been disturbed by the introduction of western urban concepts in the last four decades.
In 1904 a new neighborhood was planned in Hofuf (Eastern region of Saudi Arabia). This first planned neighborhood in the Arabian Peninsula called Assalhiyya was created outside the walled city by the permission of the Ottoman Sultan Abdulahmeed.
The origin of contemporary residential settlements in Saudi Arabia stems from the early part of this century when Aramco (Arabian American Oil Company) built its housing projects in the eastern region of Saudi Arabia between 1938 and 1944. This American camp, which introduced new spatial concepts, contrasted strongly with the surrounding home environments in the old cities in the region, Hofuf and Qatif. The native people still persisted with their own spatial concepts and images and resisted the imported ones. They considered them as strange things. Therefore, when Saudi workers and their relatives ‘moved in, they took over any empty land available and erected basic shelters and fences of locally available material, separated from each other by narrow irregular footpaths’. This created ‘a community of mud brick and timber houses built in a traditional and comfortable way’. (Shiber, 1967: 430).
Therefore, by 1947, the government had asked Aramco, who employed American engineers and surveyors, to control the growth around the oil areas. This created the first planned cities in Saudi Arabia, which followed a gridiron pattern: Dammam and Khobar (Al Hathloul, 1981). In Hofuf, local people developed a new term called Bayt Arabi or “Arabic House” (Al Naim, 2008). Prior to this introduction of new house concepts to the kingdom, there was only one type of home.
Compared to what happened in the Eastern region, few changes occurred in Riyadh in the 1930s and 1940s. However, an indication of social change can be found in those suburbs constructed at that time. For example, for the first time in the city, the new neighborhoods were classified according to economical and social status (Facy, 1982). Still the construction methods and style were completely traditional. Facey described the changes in Riyadh in 1940s as: ‘Despite the mushrooming development of the city outside the walls, traditional methods of construction continued to be employed. In the 1950s Riyadh underwent a complete change because King Saud succeeded his father in 1953 and decided to modernize the city. This was manifested by several events that took place in Riyadh: The government built the royal residential district (Annasriyyah) in 1957, with the first ever used reinforced concrete in to Riyadh. Al Hamra Palace was constructed in the 1954 to host the Crown Prince, and the construction of Al Malaz neighborhood which was completed in the late 1950s.
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Picture to the left: Mud architecture in Riyadh, first half of the twentieth century. (Source: Turath). Picture to the right: Al-Hamra Palace, different form of technology in the city of Riyadh, 1954. (Source: King Fahad National Library).
Saudi Arabia has witnessed a dramatic change in the number and size of housing units. For example in Riyadh the number of housing units in 1935 was around 5,000. And this number jumped to 12,000 units within 15 years, then to 38,000 units in 1965. And by 1975 the number went up to 125,000 units. One of the reasons for such dramatic increase in the early stages was that at the time King Abdul Aziz Al Saud began the unification of the Kingdom of Saudi Arabia. (King Abdul-Aziz City for Science & Technology. Study # AD 20- 19 final Report October 2004)
By the beginning of the 1970s, KSA’s old cities expanded outside their old boundaries, and a new situation manifested itself through the following: 1. Interference by the government in the physical environment attributed to three factors represented by the changes in the economic, educational, and communication systems in Saudi Arabia and their impact on the Saudi family. 2. Contemporary communication systems, coupled with economic and technological development, changed most of the local characteristics of traditional societies. The contemporary media in Saudi Arabia contributed to the introduction of a taste for modern housing to the Saudi family. The family, which was witnessing radical change in its economic status, was influenced by commercial advertisements. 3. Almost every citizen in Saudi Arabia was influenced by government policies that replaced traditional urban, economic, educational, and communication, etc. systems with modern ones (Babad, Birnbaum, & Benne, 1983).
History of housing policies and regulations:
Prior to 1960, most of the attempts to regulate and control the growth of Saudi cities were partial and had limited impact. By 1960, the first real building regulations were issued in the form of a circular by the Deputy Ministry of Interior for Municipalities (Al Said, 1992). Still, these regulations took fifteen years until they were regularly applied in all Saudi cities.
Despite the above delay, acknowledging the rapid growth of the cities, the government decided that the housing sector in Saudi Arabia represents a big and important part in the development of rural, social and economical sectors. Hence came the initial 7 Five year plans to further develop the housing sector, the first plan started in (1969 – 1974). Now at the end of the 8 th development plan (2005 2009)
The sixth development plan has specified a number ways to maximize the role of the private sector: Granting private and investment loans with long term payment options from the REDF to establish private housing, commercial complexes as well as housing complexes; granting residential lands to Saudi citizens
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from the Ministry of Municipality and Rural Affairs; delivering the housing projects that were constructed by the Ministry of Public Works and Housing and distributing them to the Saudi Citizens through the REDF.
Source: Housing in the Kingdom of Saudi Arabia, 20 years of Achievements. Dr. Ali bin Salem bin Omar Ba-Hammam 1402-1422H
Housing Sector during the Saudi economic Boom
The kingdom of Saudi Arabia faced a housing crisis with the beginning of the boom in 1973 due to the fast urban growth and the lack of suitable housing in these types of areas, along with the increase in prices for lands, building and building materials combined with lack of laborers which led to slow building growth and housing construction. To face this crisis the country established several government bodies relating to this sector in the form of lending planning and constructing:
1. The Saudi Credit and Saving Bank (SCSB) was established in 1971 with a goal to provide loans without interest for Saudi Nationals with limited income, especially the citizens that own their own homes but want to renovate them. 2. The Real Estate Development Fund (REDF), established in 1974 with the vision to encourage the private sector to build housing units by offering Saudi citizens long term loans that will enable them to build modern housing, in addition to granting investment loans to build housing projects and administrative buildings. 3. Ministry of Public Works and Housing established in 1975 to achieve the following goals: a. To plan and improve the public works and the housing facilities in all of Saudi Arabia b. Preparing and supporting the building of the public housing by offering technical services and supervising the engineering work that is being done. c. Performing housing statistics and preparing studies for special housing projects. d. Recording and grading the contractors as well as providing certificates and licenses for qualified contractors. Source: King Abdul-Aziz City of Science & Technology. Study # AD 20-19 final Report 1/9/1425H
With the establishment of the Ministry of Municipal and Rural Affairs (MOMRA) and Real Estate Development Fund (REDF) in 1974 (REDF resumed work in 1975), the government became aware of the need to follow up the construction of private houses that had benefited from the loans. However, the strict application of these regulations ‘institutionalized’ the villa as the only house type in Saudi Arabia.
1.5 Housing History from Citizens’ Perception The emergence of the villa type house might be attributed to the appearance of a middle class in the 1950s. This class included a mixed group of people from all over the kingdom, but mostly employees of Aramco and the government.
However, the Saudi population perception to what is a villa adapted to the country’s cultural and societal needs: most of the villa type dwellings in the Al Malaz project were transformed to meet the local social values. Al Said studied the transformation that took place in Al Malaz between 1960 and 1991. He attributes the alterations in Al Malaz villas to the existence of hidden rules amongst the residents; he named them as ‘unwritten rules’. These rules stemmed from the ‘traditional Arab Muslim territory type’ (Al Said, 1992: 266).
Dr. Bahammam (1992) found out that most of the Saudi families in Riyadh made alterations to their private houses to meet their social needs.
This probably started creating the “privacy issue in building the Saudi home.
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Transformation of Al Malaz villa. (Source: Al Said, 1992:267).
Source: Identity in Transitional Context: Open-Ended Local Architecture in Saudi Arabia, Dr. Mashary A. Al-Naim; Archnet-IJAR, International Journal of Architectural Research - Volume 2 - Issue 2 - July 2008
Dr. Ali Bahamamm explained the changes in the behavior of the residents as follows: Over four decades ago houses were built in the traditional way serving the purpose to accommodate climatic factors and catering to the social, cultural and economical needs of the people. Traditional houses were built with simple local materials with the expertise of the local people helping out each other. The houses were constructed based on the basic needs of the family and their financial capacity. By the end of the 1930s, transitional housing started to appear which was similar to the traditional housing, but the difference was that transitional housing was being built using new materials and technology. After that, contemporary housing started to appear and villas and apartments were the most common housing available. This type of housing was different from traditional and transitional housing in a way that it had a specific design and end outcome before it was built even if the size of the house was beyond the actual requirement of the size of the family and financial capability. (Source: Housing in the Kingdom of Saudi Arabia, 20 years of Achievements. Dr. Ali bin Salem bin Omar Ba-Hammam 1402-1422H)
1.6 Developers’ Points of Views This section of the report summarizes the main point of views on housing history in KSA from the conducted interviews with some of the renowned developers.
In order to better understand the demand pressure that the kingdom is currently facing, one must look back to some thirty years ago:
The Baby-Boom factor
The first housing boom started in the 1970s when Riyadh was around 300,000 (population) and become in less than four decades close to 5million.
This boom was more evident in the main cities, and Riyadh in specific, yet the general norm was applicable all throughout the kingdom due to the following reasons:
1. The metropolitan cities grew: internal migration to cities increased (from rural areas) with people usually coming to the cities from a radius of 200 250km from those cities 2. Better healthcare and higher income increased internal migration and increased the demand on housing. 3. The previous high infant mortality rates (prior to the 1960s and 70s) necessitated high fertility rates combined with a household size above 7. Once better healthcare provided lower infant mortality rates, this contributed to the baby boom (the decrease in fertility rate was not as fast as the decline in infant mortality rates), thus creating a sharp increase in the population
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Reaction to the baby boom
The government needed a quick solution to this boom, hence came the establishment of the REDF in 1974 with a loan ticket size of SAR 300,000 which at the time was a very reasonable amount capable its bearer of buying a land and build on it his home. Lands were given in Malaz and Naseem areas among others in Riyadh for example. Government also gave some of its employees villas to live in, as well as provided the infrastructure and designed the zones where the infrastructure will be placed. Due to the above, the baby boom hit the country some 25 30 years later (in the 2000s)
By-Product of Government Intervention
Up to 2004, there were some 4million housing units built. 98% of which were built by individuals. This built the culture norm of the citizens as follows: if you want to get a home; get a grant from the government, bring in the architect to design the home for you, work with him on finalizing the design… and hence you – as a citizen – become the financer, the project manager, and developer… this culture was unintentionally driven by the government directly financing the end beneficiary to build their own homes. The above precluded the private sector from growing. Now the government cannot keep up with stressed demand, and the private sector is lagging behind. One of the developers (Dar Al Arkan) described the situation with an analogy: If the citizens were given the choice to build their own car, cars will depreciate much more drastically, the look and feel on the street would be different, and hence you will end up with an unorganized sporadic market. In addition to the above, and due to the lack of the developers’ input on housing design on a large scale in the kingdom, the privacy issue gained more importance in the design of housing units: 1. The resident leaves his private home to go directly to the public street which makes barriers in the urban planning. Whereas if the plans were to move from the private home to the semi private road (small street within the micro community of few homes connected internally) then move to the public road, the transition is easier, and the privacy issue would be less flagrant. 2. Due to the nature of individual design and development of own home, this lead to an uncoordinated city. Part of the problem is the individual building; the other part is the surrounding areas to the home.
(Source: Interview with Dar Al Arkan – July 2009)
How the Real Estate Sector Metamorphosed
In recent history, the real estate market (including the housing sector) underwent changes in the behavior and experts have identified three main phases that the real estate market evolved through:
Phase Stage Name Period Description No.
I Real Estate Until 15 Straight forward buy and sell of properties either directly, or Marketing years ago through real estate agents, or through real estate billboards i.e. until (placed on the actual property ... e.g. “land for sale… call) ( ا Stage .(”circa 1994) xxxxxx ا ري) People used to wait for the government to take a piece of land, and connect it with the infrastructure (electricity, water, telephone landline, sewage system, sidewalk, pavement and lighting). Then they either wait to get government grants “ ”
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Phase Stage Name Period Description No.
to get a piece of land (for free), get the building license to start building their home. Alternatively, they can buy the land from investors whom in turn would have to wait for the municipality to pave the roads and connect the lighting system to the plotted land. II Real Estate circa 1994 – This is the stage that boosted the real estate market. It is Development 1999 (about considered the “quantum leap” stage due to the 5yrs.) government’s new regulation which imposed on developers ( ا Stage to actually take care of the utilities and infrastructural work to ا ري) any zoned area for development. This made the market skyrocket in what is known as real estate contributions " ا ه ت ا ر " Previously, developers used to request from the government to connect the infrastructure to the plots that they intend to develop, and whereas this is a free of charge service, the developer used to increase the price of land automatically as being developed with infrastructure. At this stage, governments stopped such activities: developing the land became the sole responsibility of the investor/developer. This lead to what is known as the real estate contributions where the developer buys a land from its , " ا ه ت ا ر " usually payable after) ا owner on a futures contract one year). Then raises fund through contributions (established a portfolio with interested investors that came as public shareholders. The R.E. contributions were unorganized methods to raise funds to develop land. This lasted until few years back (2006 2007) when several scams were detected due to the unorganized nature of the schemes until the Al Dureibi incidence in Jeddah with the Venice project which proved to be a mirage where the developer could not launch the project. This led the government intervention to protect people’s rights and investments and stopped all such transactions without prior approval from the government. This is now being regulated by the Ministry of Commerce and Industry and the Committee for Real Estate Contributions as per the royal decree that set its operational mechanism. The estimated figure of stumbled contributions for several billions Saudi Riyals range of 7 12bn. (Source: alaswaq.net – 26/05/2008). Other unofficial sources estimated the figures in 2007 to be about SAR 40bn. (Asharq Al Awsat newspaper, Sept. 29th, 2007). III Urban Since about From this stage, three new main developers’ segments Architectural the year branched off: (Construction) 2000 International corporations/developers (e.g. EMAAR, آ ت – (.Development Talaat Mustafa, Limitless from Dubai Gvt – آ ت (Local companies (e.g. Dar Al Arkan ( ا Stage – (Individuals and small establishments (small players ا ا ) أ اد و ت ( ا ا ) At this stage developed the total marketing concept and property management (e.g.
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Phase Stage Name Period Description No.
Colliers/OPM/Coldwell Banker…) Q& A Session with Coldwell Banker – Saudi Arabia (Sat. June 20 th , 2009), Meeting with Mr. Mohammed Al Joujou, Appraisal Management Manager
The above mentioned real estate contributions are currently being monitored by the Committee on Real Estate Contributions, under the supervision and enforcement of the Ministry of Commerce and Industry (MoCI). As part of the effort of the ministry to regularize the contributions, it has set tighter controls on the investors that wish raise to funds through real estate contributions. Investors will not be licensed by the ministry unless they fulfill the following conditions: 1. The land subject of the investment must have a clean and valid title deed 2. The design and master plan of the project must be certified by the concerned municipality. 3. The real estate agent that is offering the contributions be it individual or company – must be listed in the commercial registrar and subscribed to the Chamber of Commerce. 4. The contribution project must assign a certified public accountant to monitor the accounts. Experts believe that such measures will control the contributions, and will limit future manipulations where funds used to be invested elsewhere (for more details on the regulations, please refer to Chapter 4, Stakeholders, under MoCI section)
Source: ArabianBusines.com, May 30th, 2009
In a nutshell
To summarize this chapter, the kingdom witnessed an economic and demographic boom since the 1970s which is initially the main reason behind today’s strong housing demand. Still, even prior to that period, ever since the emergence of the middle class segment in the kingdom from the mid 1950s, and due to improving healthcare, urban development and internal migration to the new big cities combined with the relatively new concept of villas… all of which exercised pressure on the housing demand which the government tried to resolve through the establishment of the REDF and MOMRA among other ministries and agencies.
Still due to lack of necessary regulations and available flexible programs and long term housing plan, GHA was established by royal decree in 2007 to fill in the gap, ensure proper housing legislation and regulation, coordinate among the various housing stakeholders, and ensure development and implementation housing programs that would cater for the underprivileged segment of the population.
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2 MACROECONOMIC STUDY AND TRENDS AND CORE HOUSING INDICATORS The real estate sector in Saudi Arabia has been growing considerably over the years. The Saudi economy has been enjoying a high level of liquidity due to previously soaring oil prices and the surplus of government budgets only adds to the country's strong financial and economical position. With the previous excess of funds at the country’s disposal, an increase in government spending is resulting with investments being made in infrastructure, residential, and commercial real estate markets boosted by the ease of doing business in these markets being made easier for developers.
It is believed that the Saudi real estate sector is at a nascent stage in its development life cycle. It is still in the beginning of its growth stage and the prime time for development in the region is now with demand exceeding supply in most of the Saudi real estate markets. With the population increasing, unemployment decreasing, GDP per capita on the rise (looking positive especially after 2010 forecasts), the growing private sector driving major future developments, and an era of economic security (driven by the previous high oil revenues that were recently accumulated and wisely saved), Saudi Arabia is set to push its aggressive development visions forward. The shortage of office space, educational institutions, and residential units allow for ample opportunity in the country to meet demand and receive a high return on investments in the process. The country’s forecasted growth is expected to continue well into 2010, although some experts believe it may be longer, especially with some economists forecasting the global crunch to subdue by 2011).
The following table provides a high level macroeconomic snapshot of the Saudi economy (2004 2008):
Indicator 2004 2005 2006 2007 2008
GDP (SAR billions) 939 1,183 1,336 1,431 1,561
GDP Growth Rate (%) 5.3 5.5 3.2 3.4 6.0
Inflation Rate (%) 0.4 0.6 2.3 4.1 9.4
Average Lending Rates (SIBOR) 1.87 3.84 5.13 4.95 (5.00 – 3.40 (2.03 1st Q & 4.79 Q1 2008) 4 th quarter) (4.95 4th quarter)
Bank Average Deposit (in Million SAR) 435,965 489,387 591,259 717,564 846,118
Exchange Rate (SAR/US $) 3.7450 3.7450 3.7503 3.745 3.75
Source: Economic Intelligence Unit; Country Forecast Saudi Arabia, December 2008; SAMA; Quarterly Statistical Bulletin, Q1 – 2009
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2.1 Macroeconomic Overview The Saudi government’s eighth five year economic development plan (2005 2009) aims to diversify the economic base, increase economic growth and employment, and raise the private sector’s contribution to national income.
Saudi Arabia has the world’s largest proven oil reserves, and is the largest producer of crude oil in the world. Saudi Arabia is currently undertaking several projects aimed at increasing its oil production capacity to 12.5 million barrels/day by 2010. The kingdom however is likely to be cautious about expanding its capacity further until the current round’s impact on the market is clearer. Downstream projects (refineries and petrochemicals) may also be delayed, as these tend to be more reliant on foreign borrowing and investment, whereas crude capacity expansion is to be financed by the state oil company.
It is currently feasible for the government to sustain a budget deficit for the 2009 fiscal year with over SAR 37bn (though now expected to drop since the budget forecasted oil price was at USD 50/barrel) in order to push the economy and prevent recession.
The previously exceptional increase in global oil prices had resulted in increased government revenues, export revenues, and GDP for Saudi Arabia over the past 5 years (2004 2008). In fact, according to Economist Intelligence Unit, real GDP grew at a historical average of 4.3% in the period of 2004 2008. However, exceptionally for 2009, GDP is expected to decrease to a 1% before climbing back to 3.3% by 2011. Outlook is positive with potential to reach 4% by 2012. Compared to the 4.2% increase in 2008 alone (despite its last quarter performance), would look negative if one does not factor the global financial crises effects. Taking into account the latter shows a healthy trend for the kingdom compared to many countries around the world.
The World Bank recognized Saudi Arabia as one of the world’s top reformers according to the “Doing Business 2009” report.
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The above macroeconomic factors combined with government reforms assisted in bringing more wealth and opportunities to the average Saudi citizen. The following table shows the estimated increase in population up to 2013, which goes hand in hand with the GPP per head and increase in private consumption (per head)
Saudi Arabia Actual and Estimated economy, Income and demographics
2004 2005 a 2006 a 2007 b 2008 b 2009 c 2010 c 2011 c 2012 c 2013 c Population 22.5 23.1 23.7 24.2 24.9 25.5 26.2 26.8 27.5 28.2 (m) GDP (SAR bn at market exchange 938.6 1,183.5 1,337.3 1,431.4 1,769.6 1,390.1 1,536.4 1,704.8 1,868.3 1,939.1 rates) GDP per head (SAR at 41,662. 51,187. 56,475. 59,062. 70,950. 54,412. 58,687. 63,525. 67,912. market 5 5 0 5 0 5 5 0 5 68,775. exchange 0 rates) GDP (SAR 1,646.3 1,841.3 1,960.9 2,081.6 2,216.3 2,207.3 2,280.0 2,383.1 2,505.0 2,657.3 bn at PPP) GDP per 73,050 79,650 82,800 85,875 88,838 86,400 87,075 88,800 91,050 head (SAR at 94,275 PPP) Personal disposable 318.8 328.1 373.6 423.1 487.4 497.0 519.3 552.0 591.0 639.3 income (SAR bn) Private consumption per head 12,683 13,549 15,008 16,699 19,050 19,406 20,243 21,330 22,579 23,906 (SAR) – 2007 estimates No. of households 14,963 15,488 16,013 16,485 17,010 17,310 17,614 17,921 18,236 18,559 ('000) – 2007 estimates a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. Source: Economist Intelligence Unit - Country Forecast - June, 2009
2.2 Development of Economic Cities Saudi Arabia maintains the largest economy in the Middle East. The country’s GDP growth is expected to decline to and be in the negative in 2009 before recovering to 4 % in 2012. Saudi Arabia envisions making the country a top 10 globally competitive investment destination by 2010. To attain this goal, the country is launching six economic cities; King Abdullah Economic City near Rabegh, Knowledge Economic City in Medina, Jazan Economic City in the port of Jazan, The Prince Abdul Aziz Economic City in Hail, Tabuk economic city and Ras al Zour Resource City (eastern Province).
Due to the global crises effects, Saudi Arabia’s real GDP growth is forecasted to average 3.1% a year (period 2008 2013), bolstered by rising government spending and investment in infrastructural and
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industrial projects despite a forecasted 1% growth in 2009. Some planned projects, including the above mentioned economic cities, will need however to be scaled back owing to the difficult international financing outlook. The non oil private sector will slowly expand its role, partly on the back of government contracts. Source: NCB Capital – Real Estate Sector, Kingdom Under Construction, June 2008; EIU Country Forecast, May 2009 2.3 Inflation and Interest Rates Inflation is expected to decrease in the next few years after a record level increase of 9.4% in 2008. Oil sector still accounts for much of Saudi Arabia’s GDP. The Economist Intelligence Unit (EIU) expects inflation to average 9.9% in 2008 with expectations to decrease to 3.7% in 2012. The inflation in Saudi Arabia remained low at the end of 2008 compared to other countries in the GCC. In fact, the government has succeeded in controlling internal inflation through strict management of the money supply and through a series of price subsidies on commodities and services, bringing inflation down to an estimated rate of 2.8% for 2009. Concerns about an economic slowdown suggest that Saudi Arabian Monetary Agency (SAMA), the Saudi Central bank will maintain interest rates at low levels throughout 2009, especially since inflationary pressure is abating. The reverse repo (deposit) rate was cut to 0.5% in April. The authorities have scope to cut the repo (lending) rate further following a reduction to 2% in January. SAMA could also inject cash into the banking sector, as it did in late 2008, if it judges it necessary to stimulate lending. In 2010 SAMA is likely to begin raising rates, roughly in line with the policy of the US Federal Reserve (the central bank). Given the dollar peg, Saudi interest rates must broadly track US rates, but SAMA has some flexibility to decide which rates it cuts and by how much. Source: Economic Intelligence Unit; Country Forecast Saudi Arabia, December 2008 & May 2009
2.4 Budget Saudi Arabia will undergo a slight budget deficit (for the first time since 2002) during 2009 10, caused by increased government expenditures and reduction in oil prices. The government budget of 2008 was a continuation of the government’s focus on optimizing the available resources and giving priority to social infrastructure and services especially in education, health, social affairs, municipal services, water and sewage, and roads. However, the trade surplus is expected to narrow sharply in 2009 to US$ 81.8bn as the revenue from exports likely to be lower than in 2007 08. Still, the trade balance will remain firmly in surplus, but, based on oil price forecasts, the current account will record a deficit in 2009 10 as a narrowing trade surplus is insufficient to offset large net non merchandise outflows. Import spending is expected to fall in 2009 and to rise only slowly in 2010 12, reflecting commodity price trends’ which should also help to moderate inflation Source: Economic Intelligence Unit; Country Forecast Saudi Arabia, December 2008, May and June 2009
2.5 Workforce Approximately 100,000 nationals enter the job market every year exercising pressure to find jobs for Saudis. In 2007, the Saudi Arabian Monetary Agency reported an official unemployment rate for Saudis of 11% (8.30% Saudis males and 24.7% Saudis females). It has become a government priority; in fact, as part of the eight five year development plan, the government aims to encourage the private sector to increase the training and employment of Saudis.
Source: Ministry of Economy and Planning 2007; Central Department of Statistics, 2006 2007; SAMA 44th report 2008; Deloitte research and analysis, 2008 Between 2008 and 2012, the Saudi workforce is expected to increase at a CAGR (Compound Annual Growth Rate) of 2.8%, with unemployment for Saudis expected to decrease. According to SAMA’s 2008 report, unemployment among Saudis rose from 8.3% in 2001 to 11% in 2007, (estimated by EIU to have reached 11.8% in 2008) despite the strong booming growth in the private sector during that period. This may be explained by the country’s strong population growth coupled with the private sector’s general preference for lower paid expatriate workers.
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Saudi Arabia, like its Gulf neighbors, has a highly segmented labor market, almost akin to having two different labor forces. Saudi nationals, predominantly men, make up over 90% of public sector employees and also work as entrepreneurs and in various positions (mainly white collar) in the private sector. Source: Economic Intelligence Unit; Country Forecast Saudi Arabia, December 2008; Saudi Arabia Monetary Agency (SAMA), Forty-Fourth Annual Report, 1429H-2008G
Demographic Overview The population of Saudi Arabia is estimated to be at around 24.9 million in 2008 and around 25.5 million by end of 2009; this is expected to comprise 73% Saudis and 27% non Saudis. The population grew at a CAGR of 2.5% between 2002 2008. Mecca, Riyadh and the Eastern Province account for more than 65% of the total population. The Saudi family size is shrinking due to urbanization and changes in per capita income. The average family size is now 5.6 persons (down from 6.6 in 1992), as compared to much higher figures from earlier years. Riyadh, Mecca and the oil rich Eastern province together account for more than 65% of the total population. Source: Economic Intelligence Unit; Country Forecast Saudi Arabia, December 2008
Saudi Arabia’s population is generally young with almost 87% under the age of 45 and active population (age category 15 44) accounts for more than 50%. About half of the Saudi Arabian population is between the ages of 15 and 44; this age group represents the largest source of demand for residential units. With a GDP per capita estimated at SAR 54,412.5 in 2009, Saudi Arabia is expected to retain its position as the country with the fourth highest GDP per capita among Middle Eastern countries in 2009 (due to having the largest population out of all GCC countries). Source: Saudi Arabia Monetary Agency (SAMA), Forty-Fourth Annual Report, 1429H-2008G
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2.6 Macroeconomic & Demographic . SUMMARY IMPLICATIONS
• Saudi Arabia is the largest economy in the Middle East • The continuous increasing supply of real estate with its real GDP growth expected to decrease to a 1% developments within the country is a vital pre requisite to before climbing back to 3.3% by 2011. Outlook is sustain and absorb the growth of Saudi population. positive with potential to reach 4% by 2012 as oil prices recover. • Although the expected economic conditions will weaken in 2009 10 because of lower oil prices, the gradual recovery of • Saudi Arabia has the world’s largest proven oil oil prices should once again boost economic conditions along reserves and the oil sector accounts for most of its with investor confidence. GDP. • The increase in Saudi population together with the • During the last few years, the Saudi government has decreasing average household size indicate a significant been registering positive fiscal accounts and was demand for housing units. As such, a new trend is slowly focusing on optimizing the available resources. The shifting preference from villas to more affordable small 2 3 recent drop in oil prices will temporarily weaken Saudi bedroom apartments (typically 2 bedroom apartments for Arabia’s fiscal accounts and trade activity. newlywed couples, and 3 and above for married with children) . The impact is due to increasing population primarily young), more educated and autonomous by nature than previous • The Saudi Arabian population grew at a CAGR of 2.5% generations, coupled with income constraints is shifting the between 2002 and 2008 and the average family size demand slowly towards apartments. Villas are still the option was 5.6 in 2007. of choice, however, due to economic reasons it would not be feasible for the largest segment of the population at this • Saudi Arabia’s population is generally young with stage to own their own villa. almost 87% under the age of 45. • An expected increase in demand for housing units as the • Riyadh, Mecca and the oil rich Eastern province young population, who are assumed to be currently residing together have 65% of the total population. with their families, will join the workforce and search for independent accommodation. • The Saudi Arabian workforce is expected to increase continuously alongside the growing economy (2.6% per • With most of the population concentrated in Riyadh, Mecca annum), with unemployment in Saudi Arabia expected and the Eastern province, residential projects should take to decrease (decline from 9.7% in 2002 to 6.5% in place in those areas since there are many opportunities to 2006 mainly due to Saudization efforts). take advantage of.
• Increased purchasing power may translate into • With more people in the Saudi workforce, unemployment will demand for larger homes and homes with more decrease leading to an increase in demand for housing units. amenities that could be addressed in the private The government is expecting increased expenditures in 2009 marketplace despite the decrease in oil prices, and due to the increase of young Saudis coming of a working age, and through the
Saudization process, more young Saudis would secure jobs and seek to owning their own homes.
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2.7 Housing Market Indicators There is no central registry in Saudi Arabia and thus land prices are not centrally tracked. However, it is acknowledged that prices vary greatly between cities and regions. House prices have risen at an average of approximately 13.7% per annum from 2002 2005, and YoY increase of about 30% from 2006 until mid 2008 (NCB Capital, Real Estate Sector, Kingdom Under Construction, June 2008, Global Property Guide - 2008)).
Residential development in Saudi Arabia accounts for approximately 75% of all the real estate activity. It is believed that the Saudi real estate sector is at a nascent stage in its development life cycle. It is still in the beginning of its growth stage and the prime time for development in the region is now with demand exceeding supply in all the real estate markets. With the population increasing, GDP per capita still doing relatively well compared to most countries facing the financial global crunch, and with high oil revenue that was recently accumulated, Saudi Arabia is set to push its aggressive development visions forward. The country’s forecasted growth is expected to continue well into 2010, although some experts believe it may be longer with total planned real estate construction in Saudi Arabia over the next 5 years alone estimated to be above SAR 1.5 trillion (Deloitte Analysis) .
Due to the above, and since housing market indices have not been properly laid out yet, the following tables give a rather clearer indication of the government contribution to the housing sector vis à vis the self financed and employer provided housing. The tables are extracted from 1992 and 2004 Census.
Housing Units (Occupied with Households), Households and Individuals by Tenure of Housing Unit (both Saudis and Expatriates) – 1992
Type of Tenure
Own Rent Provided by the Provided by Others Total Government Employers
Housing Units 1,160,026 1,037,318 125,036 296,336 158,206 2,776,922
Households 1,163,261 1,047,349 125,337 302,039 159,158 2,797,144
Individuals 8,123,519 5,429,426 701,211 1,074,939 916,865 16,245,960 Source: 1992 Census
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Housing Units (Occupied with Saudi Households), Households and Individuals by Tenure of Housing Unit – 2004 Source: 2004 Census
Type Tenure
Own Rent Provided by Others Total Employers
Housing Units 1,620,935 971,773 141,897 27,133 2,761,738
Households 1,625,332 973,959 142,437 27,238 2,768,966
Individuals 11,037,08 4,835,042 826,546 147,837 16,846,514 9
Housing Units (Occupied with Saudi Households), Households and Individuals by Type of Housing Unit
Tradition Villa A Floor in a Villa Apartment Other Total al House or Traditional House
Housing 774,658 681,365 339,108 899,488 67,119 2,761,738 Units
Households 777,674 683,120 339,946 901,074 67,152 2,768,966
Individuals 5,073,315 5,068,565 2,149,371 4,167,603 387,660 16,846,514 Housing Units (Occupied with Saudi and Expatriate Households), Households and Individuals by Type of Housing Unit
Housing 1,114,456 729,780 386,911 1,505,429 255,207 3,991,783 Units
Households 1,117,472 731,535 387,749 1,507,015 255,240 3,999,011
Individuals 6,557,056 5,298,107 2,427,818 6,766,371 870,704 21,920,056 Source: 2004 Census
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Housing Units (Occupied with Saudi Households), Households and Individuals by Administrative Area and Construction Material – 2004
Type of Construction
Concrete Block / Brick Stone Other Total
Housing Units 2,208,529 481,571 13,848 57,790 2,761,738
Households 2,215,441 481,866 13,848 57,811 2,768,966
Individuals 13,377,504 3,025,052 89,261 354,697 16,84,6514 Source: 2004 Census
Cumulative numbers of expected (Traditional Homes, Villas, Apartments, Floor in a Villa, Duplex and attached housing) in the Kingdom every Five years (2005 – 2025)
1st Period 2nd Period 2010 3rd Period 2015 4th Period 2020 5th Period 2005 2025
Traditional 1,042,860 1,011,257 948,052 853,246 726,837 Houses
Villas 928,443 942,727 978,435 999,859 803,594
Apartments 1,357,813 1,461,720 1,600,258 1,773,435 1,981,245
Floor in a Villa 388,956 417,825 456,317 504,432 562,174
Duplexes N/A 232,261 533,425 836,482 1,367,353
Attached N/A 209,299 369,155 590,961 845,192 Source: 2004 Census
• The individual’s share of rooms is as follows, for apartments and 1 floor villas the average share of rooms per person is 1.1 rooms. For villas it is 1.2 rooms. It has decreased for traditional houses 0.8 rooms per person. (2004) Source: King Abdul-Aziz City of Science & Technology. Study # A T 20-19 final Report 1/9/1425H
PERFORMANCE INDICATORS FOR THE CITY OF RIYADH
Average Rent USD 64 (SAR 240) per sqm per annum
Premium Rent USD 76 (SAR 285) per sqm per annum
Sales Price USD 727 (SAR 2,726) per sqm
Average Yield 8.8%
Vacancy Rate 8%
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PERFORMANCE INDICATORS FOR THE CITY OF JEDDAH
Average Rent USD 65 (SAR 244) per sqm per annum
Premium Rent USD 140 (SAR 525) per sqm per annum
Sales Price USD 1,800 (SAR 6,750) per sqm
Vacancy Rate 6%
Colliers International, Saudi Arabia Real Estate Overview – Q4 2008
2.8 Conclusion • It is quite obvious that the demographics of Saudi Arabia push for more housing units due to the relatively large younger population (aged 14 45) which constitutes the largest age group within the Saudi population
• The government’s direction towards an increase in public spending (despite the budgeted deficit) makes it a favorable environment for investment in the real estate market, topped by a lowered construction material prices (namely cement and steel).
• Decreased construction material costs (namely cement and steel) as a byproduct o her global crunch will make housing more affordable to a larger segment of the population; hence opening a bigger window of opportunity to investments, in addition to the fact that demand for housing is already high due to the gap between current supply and forecasted demand. However, it is worth to mention that according to the developers, construction material price decline should not affect the housing unit price, hence the impact of construction material cost (on the decline) might be minimal.
• The expected regulations in real estate are expected to streamline mortgages, allowing better access to funding for a segment of the population that is currently missing such opportunity.
The following section will attempt to shed some light on what is being called “Affordable Housing”.
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3 CURRENT GOVERNMENT SOCIAL/AFFORDABLE HOUSING POLICY
This section of the study will try to tackle the affordable housing issues through attempting to explain what is affordable housing and what is the government’s role in that matter.
3.1 Affordable Housing & Social Housing:
There are various different interpretations about what is affordable housing and what is social housing:
1. Mr. Benoit Bellerose, CFO of Dar Al Arkan, is of the opinion that there is a general confusion in the kingdom between Affordable Housing and Social Housing: Affordable housing is the minimum required for any middle income citizen capable of buying a home. Social housing is for the underprivileged. Under current model, social housing is not profitable for the private sector; hence not much involvement is seen in this side of housing. In order to have a more private sector contribution, there is a need of government subsidizing through:
• Getting free land from the government and then build on it. (The question in such case is: who would manage the property?), or;
• Getting the government to provide the land, bring a developer/property management company to manage the project for a fee, and give the units to the underprivileged.
Source: Interview with Dar Al Arkan
2. A recent study made by King Saud University & funded by Bin Saedan Group defined the Affordable Housing ( ) as the house which is owned and maintained by the citizen against paying no greater than 35% of his income/month. In other words, it is to be able to buy a home (plus maintenance) within the 35% of one’s income.
According to Mr. Salman Bin Saedan, the current immediate solution lies in the government by either reducing the housing pricing or increasing the salaries which should tally to approximately 500,000 citizens with around SAR 3,000/month increase, totaling a ridiculously SAR 1.5bn/month across the entire kingdom.
The latter option is obviously not feasible. One good option is for the government to give away land and hence making it more affordable for developers to target the lower income ( ا را ) segments of the population. Until then, most developers currently target the middle income population, hence overlooking the lower income segments for obvious profitability reasons. Bin Saedan Group’s Affordable Housing Company for example is not for low mid income (social housing). The reason is that the housing units’ costs are targeted to the middle income segments of the population. (Source: Interview with Mr. Salman Bin Saedan, Salman Bin Saedan Group, 21.06.2009)
3. It is also valid to suggest that the housing needs of some underprivileged people could be served through income security programs of general application that would augment their ability to afford private market housing in a well functioning market. It recognizes that housing affordability problems are caused by the absence of income as well as the cost of housing. However, income security programs on their own will not necessarily create more housing or provide housing for those who have special needs (e.g. for housing with special features or residential care for old and disabled persons).To be able to call a project affordable housing (economical), the plotted land should not
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ideally be less than 1million sqm; otherwise it would not be feasible to sell the units relatively cheap (economies of scale). In other words, price of land should not exceed SAR 350 sqm to SAR 400/sqm max. As an example: If you buy a 1mn. sqm plotted land, 600 sqm would be your built up area (BuA), which roughly equals to 1,500plots/units each for about 400sqm. (Source: Q& A Session with Coldwell Banker – Saudi Arabia - Sat. June 20 th , 2009)
4. It is vital for the housing sector that the government supports the banks / finance institutions to finance the companies and private sector. There is a need for large scale projects as it would be cheaper on all parties, hence more affordable with a wider access to the population. This would present a better alternative to the REDF current programs. Instead of providing cash alternatives to the citizens, it might be more feasible to provide support to the construction companies instead of the developers (i.e. cut the cycle short) so that it would become cheaper on the citizens. This means more control from the government, since developers would also collect their profits which would mean less benefits to the citizens (unless it would controlled by the government to cap the profits at a certain ceiling).Q& A Session with Coldwell Banker – Saudi Arabia (Sat. June 20 th , 2009)
5. According to Mr. John Harris, Head of KSA operations for Jones Lang LaSalle MENA, there is currently a “pricing mismatch between what the market is delivering and what most potential purchasers can afford to pay for their housing. Affordability will unlock the undoubted latent demand for additional housing, converting this into actual demand and increased sales activity."
To meet the affordable housing challenge, four sets of criteria have been identified to provide sufficient affordable housing in the Kingdom:
a. Home Finance: Increasing the level of home finance is critical for the development of affordable housing. The approval of the much awaited mortgage law will also give a much needed boost to the market.
b. Community Planning: An affordable housing format has to be appropriate and acceptable to the local population. Community planning needs to be improved to create a better balance between utility and social preferences.
c. Engineering: Project costs can be reduced by applying innovative building technologies and economies of scale. Such practices will improve affordability and increase the supply of lower cost units. Initiatives by a Saudi institution to develop an integrated building system will certainly result in higher construction quality, reduce project cycle times and ultimately higher affordability.
d. Business Models: Innovative business models need to be adopted involving greater cooperation between the government and major private sector developers. Currently, there are hardly any public private partnerships (PPPs) in the Kingdom's housing development initiatives
Source: Jones Lang LaSalle latest MENA (Middle East North Africa) House View report published by Jones Lang LaSalle (June 2009).
3.2 Current Status The government has been spearheading the efforts for social and affordable housing. The only issue is that the efforts are being reactive rather than proactive. The REDF played an instrumental
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role in funding housing projects across the kingdom. The following tables reveal some of the government programs according to the development plans:
1. The real estate sector is currently unorganized and unregulated 2. The government is currently no longer providing land grants to developers/contractors, and if they do to individuals and/or developers/contractors, it is being granted in farfetched land out of the cities “in the middle of the desert” (Mr. Al Joujou, Coldwell Banker S.A). 3. The government is not providing financial support for the sector (to developers/contractors…).
5th Dev't 6th Dev't 7th Dev't 8th Dev't 4th Dev't Plan Government Programs Plan 1990- Plan 1996- Plan 2001- Plan Target 1985-1990 1995 2000 2004 2005-2009
Total housing units constructed 172,607 393,180 283,300 300,000 1,100,000 under the Plan
Government housing 48,607 4,570 0 60,000 225,000
Private sector housing 124,000 388,610 283,300 240,000 875,000
Total housing stock at the end 871,700 2,850,000 3,126,540 3,990,000 5,090,000 of the Development Plan
Source: Ministry of Economy and Planning
Total housing stock includes all housing units ever built, versus the housing units constructed under the plan includes government housing + private sector housing
3.3 Description & Profile of Social/Affordable Housing Programs There have been many governmental institutions that have provided and created Housing for some or all of their employees. The total number of housing units that been constructed by the government sector for its employees until the end of the fifth development plan (1994) is over 221,000 units distributed over a number of cities in the kingdom. Source: Housing in the Kingdom of Saudi Arabia, 20 years of Achievements. Dr. Ali Ba- Hammam 1402-1422H
Majority of the public programs are addressed to the public sector employees and the retired from this segment. It is worth mentioning however, that the largest provider of housing schemes to the private sector are the semi governmental large enterprises such as Saudi Basic Industries Company (SABIC), Saudi ARAMCO, Saudi Electricity Company (SEC), Saudi Telecommunications (STC), and Saudi Airlines, all of which have thousands employees and hence would reside in their own projects several thousand families. 3.4 Description & Profile of Social/Affordable Housing Programs Beneficiaries
Currently the major provider of social/affordable units is the REDF. However, the latter does not provide readymade units, but rather provide land grants and financial loans (interest free) repayment of which in reality, is not being enforced. In such case, many applicants consider the interest free loan as a grant from
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the government. The government never tried to remedy the situation in its understanding of the current situation, being part of its effort to assist the citizens to get hold of their home. The loan is open to any Saudi within a certain eligibility criteria, one of which you are only allowed to apply once.
The interesting part is that there are no income restrictions, so you find many senior university professors, teachers, doctors and army officers applying to the REDF loan. The main drawback was the limited amount (only SAR 300,000 until few days ago, when the declaration came to finally raise the limit to SAR 500,000 and unify the ceiling across the kingdom). Another drawback is the time for disbursement which might take up to 15 years to be obtained (if not more); in addition to the rather low acceptance rate of loan applications.
Some governmental programs have been and are currently being engaged to home their own public sector employees, namely the armed forces and general security. Ministry of Education also houses its teachers, especially those assigned far from their original hometown (on assignments to teach in public schools in rural areas for example or vice versa).
In a nutshell, there are no clear government programs to address the housing needs of the underprivileged (besides the REDF, and some initiatives to provide grants that come on ad hoc basis). Government officials and employees would benefit from the housing. However, it is yet to be confirmed what would be the fate of the retired public servants. To our understanding they have to leave home. But that is yet to be confirmed.
Research showed that there were some initiatives from the Public Pension Agency (PPA). The main one was in 2006, when the government instructed the PPA to launch “Masakin” (homes) programs in collaboration with Riyad Bank; which is a scheme for providing housing loans to early retired public sector workers.
The program initially started with an allotted budget of SAR 2bn, however this amount was proven insufficient as it did not meet the demand of the 3,360 applicants from the retired employees of the kingdom’s public workforce.
In December 2007, President of PPA, the Saudi Minister of Finance Dr. Ibrahim Al Assaf approved the increase in funds available for the Masakin scheme, after the agency reported a huge increase in the number of people wanting to join the program. The PPA pumped an additional SAR 10bn bringing the total allocated budget to SAR 12bn ($3.2 billion).
The scheme covers all homes and apartments costing between SAR 150,000 and SAR 1 million over a lease period between 15 and 25 years. All loans are subject to a 5% interest (profit) rate per annum (2008 rates).
The program was initially open only to government employees looking to retire before 60, the official age of retirement in Saudi Arabia. The program was criticized for not including retired employees from the private sector.
According to Riyad Bank official website, a study was made to check the feasibility of the project and identify the segments that mostly require this program. The study revealed that it is the young segment of the public sector employees that requires such scheme the most. The study also showed the importance of purchasing a dwelling not older than 10 years in order to avoid the hurdles of either getting into under construction schemes (or will be constructed) units or buying older units that might not be suitable.
Eligibility Criteria
• Applicant must have worked for the public sector for no less than 2 years. • Aged 25 and above, but not more than 55 • Minimum required salary: SAR 5,000/month • Subject to the civil and/or military pension program
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• Must not have any other financial obligations that would prevent the monthly allowed deductions from his salary as per PPA regulations • PPA reserves the right to reconsider the application should the public servant choose to move to the private sector • The dwelling must be purchased in the name of the PPA, then transfer the title deed to the applicant against mortgaging it to the PPA until complete settlement of the loan • Dwelling must be a villa or an apartment, but not a piece of land (build to own scheme is not applicable).
Payment Schedule as Such
• 10% advance payment to be borne by the applicant. • There is a grace period of one year from actual purchase of the dwelling. • Payments to be 1/3 of the salary for the employee, and 1/4 of the retired pension
The government owned Saudi Credit and Saving Bank (SCSB) announced earlier in 2007 that it is considering a scheme for providing housing loans for those sections of the population who are unable to get financial assistance from the Real Estate Development Fund (REDF) or others sources; however research did not reveal any further program implementation.
3.5 General Funding Arrangements
Main funding arrangements include land provided and interest free finance (REDF model), or support to obtain a controlled finance through banks (PPA model), in addition to funding developers to build units and then deliver them free of charge or for a fee payable over a long period of time. Some of the semi governmental companies would deduct part of the salary for rent (housing provided as long as you work for them).
As for how to fund such projects, the government agencies (especially GHA, PPA, and REDF) get the approval from the Minister of Finance. In case of over budget, special approval would be made by royal decree.
Private and semi private companies usually get self financed, or through banks. The government might assist by providing land, but that is being carried out on case by case basis.
3.6 Conclusion and Lessons Learned
Research revealed lack of clear and transparent government policies on affordable housing.
It is true that the REDF program eligibility criteria are clear, but it was only recently (June 2009) that the “Shura Council” had requested a study to be conducted to check the performance of the fund since its inception. Such move is considered a definite progressive much anticipated action that might also shed some light on the vague impact of the fund on the housing issues in the kingdom.
One downfall is the lack of similar governmental programs opened to the underprivileged (i.e. only those with income less than SAR 5,000/month for example would be eligible to acquire a loan).
Still, it is worth mentioning that the government is one of the largest home providers to the citizens (after self financers and to some extent the employer provided housing)… though the difference in market share between self financers and government provided is significant.
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4 HOUSING STAKEHOLDERS
4.1 Stakeholders’ Definition:
A stakeholder is defined as a party that:
• Affects or can be affected by the actions of the GHA as a whole.
• Has an interest in the housing market success and development in order to deliver intended results and maintain the viability of the housing product and/or service.
• Has a stake in or may be impacted by a given approach to housing regulation.
• Controls critical resources associated with to the housing sector and/ or related projects
• Can potentially influence, champion, or block the implementation of any housing programs or projects
4.2 Stakeholders’ Group:
The stakeholder can be divided into four major groups
Government Bodies
n o ti a is n a r g s to r e c O i e t it n r S GHA e a te h a m C v rn ri e & P v o i G m e S Public Agencies
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4.3 Stakeholders’ High Level Description & Their Current Role
Governmental Bodies Ministry of Economy and Planning(MOEP)
Ministry of Justice Notary public (MOJ)
Ministry of Municipal and Rural Affairs(MOMRA)
The Ministry of Finance (MOF)
Ministry of Commerce and Industry (MOCI)
The Ministry of Social Affairs (MOSA)
Public Agencies Saudi Arabian Monetary Agency (SAMA)
Real Estate Development Fund (REDF)
Public Pension Agency (PPA)
Saudi Credit Bureau (SIMAH)
Capital Market Authority (CMA)
Semi Government Saudi Basic Industries Company (SABIC)
Saudi Telecommunication Company (STC)
Saudi Arabian Airlines
Saudi Electricity Company (SEC)
Saudi ARAMCO
The Private Sector Real Estate Development / Construction Companies
Banks & Real Estate Financing Companies
Real Estate Maintenance Companies
Real Estate Agents
Charity & Non-Profit King Abdullah Bin Abdul Aziz Foundation
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Organizations Prince Sultan Bin Abdul Aziz Foundation
King Faisal Foundation
Prince Al Waleed Bin Talal Foundation
Others
4.4 Governmental Bodies
1. Ministry of Economy and Planning (MOEP)
Ensure that all government agencies work in a coordinated manner to achieve the priorities of policy makers. Towards this end, MOEP does the following:
• Prepares a periodic economic report on the Kingdom, featuring analysis of the economy, progress made and likely developments
• Prepares the five years development plans
• Estimates the magnitude of financial resources required for the implementation of the development plans approved by the Council of Ministers. These estimates form the basis for preparing the general state budget. In order to ensure consistency between the requirements of the general development plans and the available financial resources, MOEP maintains continuous contact with the Ministry of Finance for consultation and exchange of information.
• Conducts economic studies where required and submits the findings
• Collects, analyzes and publishes statistical data in economic, social and demographic fields; carries out various statistical research required since the Central Department of Statistics (CDS) is the main official source of statistical data in the Kingdom
• Assists other government agencies in planning and statistical matters.
• Furnishes technical advice as mandated by His Majesty the King and prepares and supervises implementation of the general population and houses census in the Kingdom.
• Compiles and analyzes the statistical data received from other government agencies to utilize such data in the production of various statistical bulletins
2. Ministry of Justice - Notary public (MOJ)
Ministry of justice is involved in a very vibrant and important role in everything related to real estate issues, for the following reasons:
• The involvement of the general courts in real estate cases.
• Judicial writings on everything related to transferring the ownership of property, registration of mortgage on the real estate or any act that can restrict or transfer the property.
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• The registration of any action that would transfer the ownership of real estate units
• Preparation and development of the real estate mortgage bylaws
3. Ministry of Municipal and Rural Affairs (MOMRA)
The Ministry of Municipal and Rural Affairs plays a substantial and significant role in everything related to cities, neighbourhoods and regions planning and what is classified to (Commercial - Residential) by the Sub-Group and the municipalities, which play an important role in the activation of policies, plans and city planning. One of the MOMRA’s responsibilities, but not limited to:
Land-grant program
• Transport planning and traffic
• Local planning
• Urban Planning
• Land divisions of the adoption of schemes
• Coordination of projects
• Classification of contractors
• Issuing requirements for the divisions of lands and organizing the construction of housing
• Issuing licensing (construction demolition renovation digging the streets check schemes)
4. The Ministry of Finance (MOF):
The Ministry of Finance represents the interest of the property of the state and is responsible for the territories under its control based on the decision of the Council of Ministers number 983 on 15/06/1396H.
The ministry approves the funding of all major housing projects. In fact the Minister of Finance approves funds of GHA and PPA projects.
5. Ministry of Commerce and Industry (MOCI)
Control the contributions of real estate based on the Council of Ministers Resolution No. 7 / d / 21149 Date 8/9/1403
Rules and controls for the distribution of the real estate contributions
First : There shall be no distribution to real estate contribution of any kind, or advertising for it unless there is approval from the Ministry of Commerce and Industry
Second : The land which is offered for contribution must be owned with a valid legal title deed and meets the statutory procedure under which the benefit of the ruling
Third : The blueprints of the land must be authorized by a secretariat or the relevant municipality
Fourth : The real estate office/agency, which shall be in charge of the contribution, whether individual or corporate, must be registered at the commercial register and participates in the Chamber of Commerce and Industry.
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Fifth : Appoint a licensed certified public accountant to monitor the contribution.
Sixth : The real estate office or corporation must own at least (20%) of the shares.
Seventh : The contribution must have an opened separate account at a local bank.
Eighth : Value of the subscribed shares must be paid only by a certified check.
Ninth : The contribution must be announced according to a formula adopted by the ministry. Such declaration must be made at least once in a daily newspaper published/distributed in the area of contribution.
Tenth : The announcement of the contribution should not have any information regarding the expected proportion of profits and should include the following data:
• Determine the location of the contribution marked by land borders, area, number and date of ownership • Total value of the purchased land and a contribution rate of per sqm. • The name of the real estate office/agent, which will contribute to the number and date of approval by the ministry • Determine the duration of the subscription including opening and closing dates • Number of shares before offering and the value of the stock and area
Eleventh : Subscription does not exceed more than ninety days, and canceled if the contribution did not cover the full value of the stock during that period and that the office must return the full value of the shares subscribed by the shareholders for a period of less than thirty days from the date of the cancellation of the contribution
Twelfth : Contribution to be closed as soon as all shares are offered for subscription and receipt of payments is not more than them
Thirteenth : the period of contribution does not exceed three years. Contribution will be settled through the sale of land by public auction. The contributions must include the following:
• Provide a feasibility study for the contribution project • Determine the cost of construction and the estimated duration • Obtain a building permit from the Secretariat or the municipal authorities • Begin implementation of the project over a period of ninety days from the date of the closing of the offering • Liquidate the contribution within two years from the date of completion of construction and receipt from the contractor • Vow not to announce the ratio of operating profit and non monetary contributors to the non contributing and commit to the conditions and regulations set forth by the resolution • The accountant to vow to report to the supervisor every three months until the liquidation of the contribution 6. The Ministry of Social Affairs (MOSA)
MOSA was established to administer charitable associations and institutions, guide volunteer efforts of the civil workforce and organize a number of associations with different responsibilities in the areas of care and various social and economic development in light of the associations and charitable foundations act, which was issued in 1384H, and subsequent regulations and instructions for the establishment of associations, registration and technical support material until issued a list of associations and charitable foundations Council resolution 25 e. / 6 / Ministers No. 107.
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One of MOSA’s functions is to improve housing and care facilities: such as securing adequate housing for needy families free of charge or at nominal fees, and improve physical health and housing of low income households.
4.5 Public Agencies
1. Saudi Arabian Monetary Agency (SAMA)
Article II of the mortgage finance system states that the Ministry of Finance will prepare the general policies of the real estate finance in agreement with GHA, and subject to approval by the Council of Ministers, and to put forth with agreeing with GHA the operational plans that are required for that
Also Article III of the rules states that: SAMA should organize the real estate financing sector which includes:
• To allow banks to engage in real estate finance by owning homes to finance them
• The licensing of real estate financing companies, according to these rules and supervising rules for finance companies
• The licensing of a joint stock company or more for refinancing according to the needs of the market
• The licensing of insurance companies to cover risks related to the cooperative real estate finance, according to the rules of supervising cooperative insurance companies
• Issuance of standards and procedures for real estate finance and review the models of the real estate mortgage contracts issued by real estate financiers, and ensure that they conform to those standards and procedures, and achieve appropriate protection for the consumer and the beneficiary.
• Determines the principles of disclosure and the cost of financing and the way it’s calculated to enable the consumer to compare prices.
2. Real Estate Development Fund (REDF)
Real Estate Development Fund was established by Royal Decree number (23/M) on 11/6/1394H. It provides lending services to all regions of the Kingdom through 25 branches.
The aim of the development fund is to provide loans to individuals and institutions for the establishment of real estate projects utilizing private or commercial use, through special loans and investment loans.
3. Public Pension Agency (PPA)
Participate in the financing of housing for civil servants; and possibly social security for the staff of the private sector)
4. Saudi Credit Bureau (SIMAH)
SIMAH is considered to be the first company in Saudi Arabia to collect and provide all local banks and companies related with the various credit related information, as well as to help credit donators make the right decisions with more objective to achieve this goal, the credit information center collects credit information from the participating members to provide full information about records of customer credit to donators. This role played by (SIMAH) is considered one of the important roles that will help companies, financial leasing and other financing lending houses in the assessment of loan applicants
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and their credit history, hence reducing risk and default rates, and on the long run, assist in providing wider access and easier loans to the end user.
It is worth to note that though SIMAH was established by a decree as per SAMA regulations, and though we have classified it under public agencies, it is a private company that was established by a decree to fulfill a regulatory purpose.
5. Capital Market Authority (CMA)
Deals with the financial market by introducing a system of real estate investment funds issued by the Council of the Capital Market Authority under the Resolution No. 1 193 2006 e and date 19/06/1427. It aims to regulate the establishment of investment funds and real estate in the Kingdom and manages to protect the rights of owners, and the application of the rules for disclosure and transparency.
6. Semi-Governmental organizations
There have been many semi governmental organizations that have provided and created housing for some or all of their employees through easy financing programs. The total number of housing units that have been constructed by the semi governmental sector for its employees until the end of the fifth development plan (1994) was over 221,000 units distributed over a number of cities in the kingdom.
Majority of the public programs are addressed to the private sector employees and the retired from this segment.
One of the largest providers of housing schemes are the semi governmental large enterprises such as Saudi Basic Industries (SABIC), Saudi ARAMCO, Saudi Electricity Company (SEC), STC and Saudi Airlines, all of which have thousands of employees and hence would reside in their own projects several thousand families
4.6 The Private Sector
1. Real Estate Development Companies:
Because of the need to provide different housing units for the increasing demand of housing in Saudi Arabia and specifically in the main cities of Riyadh (Central Region) and the Dammam/Khobar (Eastern Region) and Jeddah (Western Region), Which is often, the true measure of demand and supply factors in the country in general. Increasing demand for housing has led to the movement of real estate activities in the country. This stimulated the construction sector, and would be visible in particular during the next five years in the construction of housing units and land for housing.
There are many real estate development companies working to develop housing projects in the Kingdom for example: Al Qasr project that was introduced by Dar al Arkan in Riyadh, Al Ali Holding Company project in a number of areas in the country.
2. Banks & Real Estate Financing Companies
This section covers banks and financing companies that provide conventional and Sharia’a financing in the real estate market. The main issues that govern the real estate finance market are the following:
• Real estate financing rules
• Rent financing rules
• Supervising the financing company rules
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• Mortgage registering rules.
The above rules will have a prominent role in elevating the real estate finance industry in the Kingdom, through the development of controls and restrictions governing the operation of firms on the one hand and providing protection for the corporate real estate finance in the face of customers on the other hand.
3. Real Estate Maintenance Companies:
It is clear through our observation of the Saudi market that it lacks professional maintenance companies which are able to provide the levels of maintenance for both buildings (commercial and residential).
Still some large developers are starting to acknowledge the need for maintenance companies, and part of their endeavor to own the housing cycle from the private sector perceptive have either established or are in their way to establish maintenance companies. For example, Bin Saedan Group has already established a maintenance company through partnering with a large U.S maintenance company, Maintenance Made Simple (MMS). By doing so, the developer not only undertakes to develop, submit and property manage the project to the end user, but can now directly undertake the maintenance which is improving the quality of the houses, improving the developers’ as well as the entire market’s reputation. This however comes at a risk: maintenance companies are heavily reliant on manpower and labor, something which might not always be readily available in terms of visa issues (to bring in the labor) or quality versus the cost.
4. Real estate Agents:
Where the offices of real estate agencies that had been organized under the Council of Ministers Resolution No. 334 and the date of 7/3/1398 licensed commercial offices sell and lease real estate, and the practical experience has shown that it is the only party to assess property in the courts and other judicial bodies. The main challenge is that most agents are family owned unprofessional agencies.
4.7 Charity & Non-Profit Organizations
Roles of Charity Foundations:
1 Improving and building houses for poor families in underprivileged neighbourhoods. 2 Offering training and rehabilitation for individuals and families to improve their living condition by acquiring skills that will enable them to depend on themselves and improve their income. Key Charity Foundations are: • King Abdullah Bin Abdul Aziz Foundation • Prince Sultan Bin Abdul Aziz Foundation • King Faisal Foundation • Prince Al Waleed Bin Talal Foundation For more details on charitable organizations, please refer to chapters 6 and 8.
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4.8 Stages of Building Stakeholder Commitment
For GHA to successfully implement the new housing programs and housing regulations, key stakeholder groups need to be engaged and achieve the necessary level of commitment as follows:
Building Stakeholder Commitment
High High (Ownership)
Support T N All Stakeholders are E actively M participating in the IT initiative and are M supporting the GHA T M initiative R Willingness to Accept O O F C All Stakeholders are willing to F F work E O Stakeholder with GHA and implement the E proposed housing programs E Understanding R G General Each Stakeholder E Understanding understand impacts and D Awareness benefits to the housing All sector Stakeholders All Stakeholders Low Low understand (Awareness) are aware of basic impacts to other scope and organization concepts of GHA and their initiative functional area
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5 HOUSING DEMAND – DEMOGRAPHIC AND SOCIO ECONOMIC INFLUENCES (CURRENT AND EXPECTED)
The social fabric and constitution of the Saudi population is exercising pressure on the housing demand market: Nowadays most engaged Saudi men are requested by their future in laws to provide an independent home to their future spouse as part of the acceptance requirements (independent residence). Average household size is decreasing, which brings higher demand on units, at least on the short and medium run Interview with Mr. Salman Bin Saedan, Salman Bin Saedan Group, 21.06.2009
Recent Housing Demands Reports The undersupplied Saudi housing market is likely to offer significant opportunities for public and private firms alike. In November 2008 the managing director of the Saudi Home Loans company (SHL), an Islamic mortgage lender, said that only 30% of Saudi nationals owned their homes, although official estimates tend to be higher. With no formal mortgage legislation and only limited state help, middle to low income Saudis have been reliant on family support or occasional government grants to purchase houses. The residential market also remains substantially undersupplied: estimates released in March by Clayton Holdings, a US based consultancy, put the current shortage at two million residential units, with this figure growing by 200,000 units per year. As a result of the supply shortage, rents rose by an annual 18.8% in April, in stark contrast to the trend elsewhere in the Gulf. Economist Intelligence Unit, Views Wire (June 3rd, 2009)
According to another recent report published by HSBC, Saudi Arabia requires around 1 million new houses by 2014 to meet the needs of its growing population. House prices are seen falling in the short term due to the global credit crisis. However, contrary to the norm, while some villa and apartments prices went slightly down, the majority of such units retained their prices, and some even appreciated… even rent somewhat increased. One possible reason to that effect is the available liquidity within the reach of real estate investors who could afford to retain prices and not sell at this stage for lesser prices.
The expected slowdown in credit growth in 2009 would affect the property demand, putting pressure on prices in the short term. HSBC forecasted a 15 percent decline in house prices and rents in the kingdom's capital Riyadh in 2009, with a slow recovery expected in 2010.
But a rapidly growing population means there are shortages in residential, commercial, retail and hospitality property in Riyadh, Jeddah, Mecca, Medina and the Eastern Province, the report said. This would eventually lead to prices rising again.
The country's population is expected to reach 26.5 million by 2014, up from 23.7 million in 2007, it said, citing government estimates.
Saudi residential prices are relatively affordable compared to its neighboring countries, namely UAE and Qatar, with further room for appreciation. Given the tight market and the imminent introduction of the mortgage law, the report believes that prices are likely to move higher.
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While other markets in the Gulf Arab region cater mainly to the high end expatriate segment (where expatriate population constitutes 75 85% of the population), the affordability in Saudi Arabia and restrictions on foreign ownership mean low to mid income Saudi nationals will likely drive demand.
Urban migration will drive demand in residential and office sectors in Riyadh and Jeddah..
(Source: www.arabianbusiness.com)
5.1 Demand Analysis The purpose of this section is to develop an understanding of the economic, demographic, and income characteristics of Saudi Arabia, which will have an impact on the ultimate demand for housing in the Saudi Arabia.
The demand for housing is driven by: income level and growth; demographics; urbanization; and housing’s value as a social and economic asset.
Despite a global recession and declining property markets across the world the real estate activities in KSA is estimated to increase at an average annual rate of 5.8%, with its contribution to GDP increasing from 6.8% in 2004 to 7% in 2009.
The size of the housing market in Saudi Arabia is estimated at SAR 67 – SAR 78 bn, which is around 70% of the total real estate market. The housing market comprises apartments, villas, floor in villas (duplex), traditional homes and residential compounds.
The government generally allocates land and the private sector is the dominant real estate developer. Source: Markaz Saudi Real Estate Overview, Jul 2007; Deloitte research, 2008
The homeownership levels are estimated at a range of 40 50% according to official figures. A further analysis of the housing ownership in the kingdom shows a more conservative rate as follows:
Breakdown of Saudi Population by Home Occupancy, 2007
Employer Provided, 11.0%
Rented, 44.0% Owned, 45.0%
Source: Ministry of Economy and Planning, 2008
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Above figure shows the official figures whereby home ownership rate is at approx. 45%. However, that does not necessarily reflect the actual homeowners’ percentage of the Saudi population.
Assuming from the above figure that 45% of Saudi population live in homes they own (or being owned by the household head), divide this percentage by the household size of 5.3, this brings down the ownership to roughly about 10% of the Saudi population (title dead holders)
The following tables provide the reader with high level figures on population, employment, and income related statistics:
Population Related Statistics Indicator 2000 2004 2005 2006 2007 2008
Total Population (m) 22.5 23.1 23.7 24.2 24.9
Annual Population Growth Rate 2.3 2.6 2.4 2.7 3.0 (%) 20 29 years 16.82 18.95 N/A N/A 18.25 N/A 30 39 year 15.98 17.55 N/A N/A 18.55 N/A 40 49 years 8.91 10.67 N/A N/A 11.27 N/A 50+ year 8.49 8.87 N/A N/A 9.89 Total number of Existing 3989.9 4130.1 4270 4409.9 4550 Households ‘000 Average Household Size 5.5 5.4 5.4 5.3
Total population – Economist Intelligence Unit, Country Report – Saudi Arabia 2009 Annual Population Growth Rate (%) – EIU Country Profile 2008 % of Population between the ages: Central Department of Statistics and Information, Ministry of Economy & Planning Total number of Existing Households ‘000 – National statistical offices/Euromonitor International Average Household Size: Central Department of Statistics, 2000 2004; Deloitte research and analysis, 2008
The above table revealed a general increase of 140,000 households per annum over the period 2004 2008.
Employment-Related Information Indicator 2004 2005 2006 2007 2008 Unemployment Rate 5.82 6.05 6.25 5.63 Labor Force Employed by the Private 713,751 765,621 N/A N/A N/A Sector – Saudis Labor Force Employed by the Private 4,866,989 5,061,235 N/A N/A N/A Sector – Expatriates Labor Force Employed in the Public Sector 694,494 712,835 733,866 760,995 N/A – Saudi Labor Force Employed in the Public Sector 68,771 70,441 69,797 68,990 N/A – Expatriates Total labor force (m) 5.4 6.1 6.4 6.6 6.7
Income-Related Statistics Indicator 2004 2005 2006 2007 2008 Per Capita GDP (SAR $ at PPP) 73,050 79,650 82,800 85,875 88,838 Per Capita Disposable Income SAR 11,906.25 12,787.5 16,162.5 19,050 Per capita Income (SAR) 41,668 51,169 56,401 59,016 Total population – Economist Intelligence Unit, Country Finance Report – Saudi Arabia 2009
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The rather high and increasing Per Capita GDP (estimated average growth across the 5 years at 5%) shows a healthy trend which would play a positive role in assisting the local economy and indirectly positively affects the housing sector. Monthly Average Household Income Quintile (SAR) 1 (High Income) >50,000 SAR/mth 2 (Upper Middle Income) ≥20,000 50,000 or 70,000 SAR/mth ≥13,000 20,000 SAR/mth 3 (Middle Income) 4 (Lower Middle Income) ≥7,500 13,000SAR/mth 5 (Low Income) ≤7,500 SAR/mth
• Analysis shows that Low Middle income (average monthly income of above SAR 7,500/month) are eligible to obtain a loan for roughly SAR 400,000 which covers a house/apartment.
• It is not an affordability issue for expats to own a home, it is rather an acceptance issue to live in area (x) with neighbor (y). Source: Interview with Dar Al Arkan
However, other interviews revealed similar trends in quintile analysis, though slightly differing (a good indicator would be to average both experts’ views to get an unbiased educated estimation of the actual income per quintile):
Monthly Average Household Income by Quintile Monthly Average Quintile Household Income Number of Households (SAR) >35,000 SAR/mth (some 1 (High Income) 3 5% of population would argue above 50,000) 2 (Upper Middle Income) ≥25,000 35,000 SAR/mth N/A ≥15,000 25,000 SAR/mth 3 (Middle Income) N/A 4 (Lower Middle Income) ≥3,000 7,000 SAR/mth N/A 5 (Low Income) ≤3,000 SAR/mth N/A
Saudi ministry of economy forecasted that one million units are required for the period 2005 2009. Such forecast was made based on economic and demographic growth trends. Included in the projection were housing unit requirements outstanding from the 7th Development Plan, which ended in 2004. In total, the number of units required to be completed by end 2009 was one million. This included 897,500 new units and 102,500 replacements for depreciated homes.
According to a recent study by Kuwait Financial Centre (Markaz) in June 2009, total demand for residential units in the Saudi Arabia is expected to be in the range of 500,000 to 800,000 units during the period 2009 13 based on the assumption that the economy would get back on growth track from 2010 driven by recovery in oil prices. We expect the passing of mortgage law to cause a trend shift in demand leading to levels 50% higher than without it.
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Eighth Saudi Development Plan Housing Requirement Forecast (in thousands), 2005-2009 Total 239 Replacement 1 25 220 20 44 Outstanding 40 165 59 67 65 27 37 111 From 7 th 20 Development Plan 27 15 170 New Units 160 5 5 5 46 118 20 32 30 5 3 12 51 34 19 30 30 20 15 Makkah Riyad East Madina Assir Jizan Qassim Hail Other* Region
(1) Total Replacement: Old homes / units requiring replacement (*) Other: Tabuk, Northern Borders, Najran, Baha, Jouf. Source: Eighth Development Plan; Deloitte Analysis
Provision of Housing under the 8 th Development Plan
Provided by Number of Units
Private Sector 650,000 Private Sector with Government 225,000 Support
Real Estate Development Fund 90,000
Ministry of Social Affairs (Charitable 35,000 Housing)
Total 1,000,000
• The highest number of units required was in Makah province, 239,000, which includes the city of Jeddah. This was followed by Riyadh (220,000) and the Eastern Region (165,000)
• The government decision to allocate 650,000 units to be built by the private sector is a reflection of the importance it is giving to the private sector, including developers, banks and finance companies
Based on demographic trends, Saudi Arabia will require an additional 1,163,000 residential units in the period 2008 2013, to meet the demand for housing for its growing population. The forecast is made based on an assumed average household size of 5.4, and the existing structure of housing units by province. Based on these estimates, it is expected that will Makah province (which includes the city of Jeddah) and
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Riyadh province will generate over 50% of total demand. Makah, Riyadh, Medina and the Eastern Province will account for approximately 90% demand. Source: Saudi Ministry of Economy and Planning; Deloitte Research and Analysis
Based on the current distribution of housing units in the Saudi Arabia, it is expected that apartments and traditional houses will account for the majority (60%) of demand over the period 2008 2013. While Saudis generally prefer villas, annexes or traditional houses, rising costs and changes in lifestyle may induce a moderate shift towards apartments over the period. Apartments will satisfy the average middle class young Saudis and the new married couples. Source: Saudi Ministry of Economy and Planning; Deloitte Research and Analysis
•
5.2 Housing Characteristics: A field survey conducted in 2004 by King Abdulaziz City for Science and Technology revealed that 38.8% of housing units in the Kingdom are villas, 30.9% are apartments, 20.9% are traditional houses, 8.5 % are a floor of a house and 0.9% are tin houses.
Studies have also shown that 15.4% of families that contain less than five people live in villas while 29.8% families that contain five to seven people and 54.6% families that contain eight people or more live in villas. The general trend is to move to a villa when the household number increases, especially to 8 and above. Inversely proportional, apartments are most commonly used for household of less than 5 people as follows: • 59.9% of families with household less than five people live in apartments; and • 41.8% of families with household of five to seven people live in apartments; and • 11.3% families with household of eight people or more live in apartments.
Household size has gradually decreased in Saudi Arabia, a reflection of changing cultural values. Historical households and household size in Saudi Arabia, 1992-2007
7 5,000 6 4,000 5 4 3,000
3 2,000
Household size Household 2
1,000 Households ('000) 1 0 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Households Household size
There is a decline in Saudi Household size from 6.08 to 5.3 during the period 1992 2007 respectively. This reflects a tendency for new families to get independent, associated with an increase in disposable income. This tendency will further increase the demand for new housing units. This trend is perpetuated by the intra regional migration patterns resulting from: • Un even urbanization patterns creating job opportunities away from ones place of birth • Rising per capita income, and • Changing cultural norms Source: Central Department of Statistics, 2000-2004; Deloitte research and analysis, 2008
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According to National Commercial Bank Capital (NCBC) report (Kingdom Under Construction, June 2008), the traditionally more mobile segment of population (including the Bedouins) has seen a change in lifestyles, converging to urban centers for permanent residency and a higher standard of living. This has helped drive the percentage of urban population in KSA from 21% in 1950 to 81% in 2005. UN estimates suggest that the extent of urbanization will climb to 90% by 2050.
As a result, the rural to urban migration is creating a more focused concentration of development around metros, economic cities, industrial zones and education centers.
Percentage urban population growing in KSA 58: Percentage urban population growing in
KSA Source: UN, NCBC Research
5.3 Urban Agglomerations
In terms of the expected population by 2015, the top six urban centers account for 43% of the population in 2000, as against only 15% in 1950. The percentage is estimated to rise to 57% by 2015. Among the top six urban agglomerations, Riyadh and Jeddah would account for 38% of the population in 2015, as against 29% in 2000. Major growth is seen in Jeddah, Riyadh and Jazan. Expected population growths in Mecca and Medina are not directly comparable, as these two cities primarily have a floating population (given the significant visitors for Umra and pilgrimage).
In our estimates, we have included Sudair as part of Riyadh agglomeration, KAEC Rabegh as part of Jeddah, and KEC as part of Medina. These population estimates are used to construct the residential demand.
Worth noting that above figures show percentage of main cities and their adjacent areas to the overall population. However, taking the governorate or provinces level, Mecca, Riyadh and Eastern province (Dammam/Khobar) would account for roughly 60% of the population.
5.4 Important Metros for Future Development The main residential cities would be Riyadh, Jeddah, Mecca, Medina, Dammam, and Al Khobar
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The six economic cities and industrial zones including Sudair will be crucial to the development of the Kingdom, and would provide much needed release to urban pressure among the main cities and their housing units, provided no downsizing of such projects occurs, if any. NCB Capital – Real Estate Sector, kingdom under construction, June 2008
• Above figures are based on 2004 census and revealed that: • Apartments comprised 38% of all housing units. • 56% of all Saudi nationals were below the age of 20. • Expatriates made up 27% of the total population. • Expatriates made up 43% of the population aged between 25 and 39. As shown above, there is a clear preference for apartments in Jeddah compared to other cities. The cultural openness, combined with exposure to the sea and high percentage of nationalized immigrants gave Jeddah a unique stand in the kingdom.
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5.5 Housing Shortage
The Saudi ministry of economy has recognized the challenges facing the housing sector and has proposed steps to redress it. The ministry has adopted a two tier approach on the one hand is the strengthening of government subsidized and charitable housing solutions, to make housing within the reach of lower income citizens. On the other hand, is the development of a regulatory framework that will allow the private sector developers, finance companies and commercial banks to enter the housing sector in strength.
Reasons for Housing Shortfall: • Growing population and increased demand for housing: This has increased the prices, leaving homes and small land plots beyond the purchasing capacity of many citizens, particularly in the big cities
• Shortage of residential land within current defined city boundaries
• Legal obstacles for the provision of long term housing finance by the private sector
• The rise in housing construction costs and inadequate use of resources in construction projects
In KSA, it is expected that the demand for apartments and annexes will increase, while demand for traditional houses will decrease
Province new units breakdown by type Province new units breakdown by type (‘000), 2008 (‘000), 2013
Makkah 28 17 3 3 52 Makkah 32 20 4 4 2 62
Riyadh 14 5 11 7 3 40 Riyadh 18 6 14 8 4 50
Other Regions 3 9 7 6 7 32 Other Regions 4 11 9 8 8 40
Eastern Region 8 4 7 2 1 22 Eastern Region 11 5 8 2 1 27
Aseer 3 4 1 21 10 Aseer 3 4 3 21 13
Medinah 7 4 1 10.451 13 Medinah 9 5 1 1 1 17
Apartment Traditional House Villa Apartment Traditional House Villa Annexes Other Annexes Other
* Annexes: include duplexes, floor in villa or traditional house ** Other Units: mainly housing compounds Source: Saudi Ministry of Economy and Planning; Deloitte Research and Analysis
According to NCB Saudi housing Review (2007), average Saudi household size would gradually converge to less than 5.1 persons per occupied housing unit by 2020. This implies an aggregate housing stock of 7.5 million units in order to accommodate the projected population of 38.25 million that year. As such, the Saudi housing market is expected to expand by nearly 2.75 million units over the 2008 2020 period, with annual demand rising from 183,000 units in 2008 to 265,000 by 2020.
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On annual basis, 221,000 units would be demanded on average per year during our forecast period for a total investment of SAR 116.1 billion per year (the equivalent of SAR 525,000 per house).
Sources: NCB, Saudi Housing Review, July 2007 ; Deloitte Analysis
5.6 Main Provinces Central Province Riyadh, the city
Riyadh is the capital of Saudi Arabia as well as its largest city. Riyadh has been projected to become the first mega city in the Gulf region within a decade boosting demand for housing and office space in and around the city.
Currently, various areas of northern Riyadh and the northwest are witnessing a housing boom. Most of these areas cater to high income clientele who opt for customized housing units. Some developers have started to plan low income housing schemes in the south and southwest of the city, targeting the employees of the industrial enterprises that are located in these areas. Activity has not been exclusive to the outskirts of the city, as downtown Riyadh has experienced a burst of new developments in the past years.
Riyadh is projected to account for 24% of the new demand for housing units in the next few years. On average the annual demand for housing units in Riyadh will equal 53,415 units. By the year 2020, apartments and villas would constitute the largest shares of housing units in Riyadh accounting for 38% and 31% respectively.
The Western Province Jeddah, the city
Jeddah is witnessing substantial growth in construction. Land on the city’s corniche has witnessed an extravagant rise. Housing units, mainly high end residences, are being developed in the northern parts of the city. Similarly, larger housing projects are spreading to the southern limits of the city and beyond.
With recent regulations allowing the construction of multi storey buildings, a new wave of high rises are being constructed, with developers attempting to maximize returns on investments by increasing total built up space.
Mecca, the province
Mecca will account for 29% of the new demand for housing units in the next few years. On average the annual demand for housing units in Mecca would equal 65,264 units. By the year 2020, apartments and duplexes would constitute the largest shares of housing units in Mecca accounting for 57% and 15% respectively.
Demand in Jeddah would constitute 53% of the demand in Mecca (around 35,000 units per year). The Eastern Province
The oil rich Eastern Province constitutes 14% of the total population, concentrated mainly in the cities of Dammam, Al Khobar and Dhahran. A considerable amount of real estate development is also taking place in many parts of the Eastern Province, ranging from sea front resorts, apartment complexes, residential
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communities and hotels.
The Eastern Province might account for 13% of the new demand for housing units in the next years. On average the annual demand for housing units in the Eastern Province will equal 29,700 units. By the year 2020, apartments and villas would probably constitute the largest shares of housing units in the Eastern Province accounting for 44% and 30% respectively. Sources: NCB, Saudi Housing Review, July 2007 ; Deloitte Analysis
Job Market & Income Distribution
5.7 People Preferences to Housing
Relationship between family size and type of housing
Type of Housing Size of family
Less than 5 Members 5 – 7 Members 8 or more Total
Villa 16.6% 28.5% 64.9% 36.3%
Floor in a Villa 3.7% 8.1% 5% 6.1%
Apartment 66.3% 53.6% 23.4% 47.9%
Traditional Houses 13.4% 9.8% 6.8% 9.8%
From this table we can see that for families with 7 members or less reside mostly in apartments. For families with 8 or more members reside mostly in Villas. Also we can see that a family no matter what the size of family “Floor in a villa” type of housing has the least residents. The average size and number of rooms of different housing types
Type of Housing Average Size (Sqm) Average No. of rooms
Villa 658.2 9.6
Floor in a Villa 275.3 7.1
Apartment 181.8 5.1
Traditional Houses 334.6 5.7
Above table shows that villas have the most rooms and apartments are smallest in size. Traditional houses are generally bigger in size than a villas and floor in a villa, and they have lesser room than the floor in a villa.
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Saudis prefer to live in large units (mainly private homes), while non Saudis live in smaller units (mainly apartments):
• Villas and private houses are typically more popular among Saudi nationals mainly due to large family size, availability of land, access to capital and affordable labor.
• However, increasingly, market trends have shifted to more western style housing among the younger population, small families, expatriates and newly married Saudis (without children or generally up to two children).
• It is interesting to note that traditional houses dominate the structure in Mecca along with apartments. Riyadh and other large cities have a more or less balanced structure.
5.8 Housing Preference by Age
The young Saudi population which tends to be educated and construes in majority the middle income segment tends to prefer to live in a villa, if the income allows.
Since the latter has its constraints especially in recent times (decreased disposable income, increased expenditures and expensive lifestyle, difficulty to access financing, fear of the increase price of houses, impact of the global economic downturn on own personal lives…), all of which made them more reluctant to get into a long term commitment to buy a new home. In addition, the new independence issue where young fresh graduates prefer to live on their own is increasing, which make the options of rent, or buying an apartment at this stage more appealing.
5.9 Housing Preference by Level of Education
Though a thorough study was not made to cover strictly preference by education, the trend of average young educated Saudis is to move to an apartment first, establish oneself, and then move towards a bigger home (villa for example) once they are established. Even apartment rent these days is not looked down upon as an option. Many Saudis of the middle income segment are now moving to 3 bedroom apartments in relatively upper class areas.
5.10 Housing Preference by Income
According to many real estate experts, the current natural preference for Saudis is to own a villa. However, it is the income constrain that would be the differentiator in terms of housing choice. Due to the increased standard of living and growing independence of young educated population, the Saudi youth is slowly moving towards owning apartments as a cheaper alternative to rent. This segment of the population (which is the largest in age composition) knows that it cannot own a villa at this stage, thus would settle for rent until their income becomes suitable, or when married and might have a household income of both spouses, then they might consider owning an apartment, and if possible at a later stage, owning a villa.
Income analysis showed no surprise: • 20.5% of families with a monthly income of less than SAR 5,000 live in villas, • 28.3% of families with a monthly income of SAR 5,000 7,999 live in villas; and, • 49.9% of families with monthly income of SAR 8,000 11,999 live in villas; and, • 70.0% of families with a monthly income of SAR 12,000 or more live in villas. .Source: King Abdul-Aziz City of Science & Technology. Study # A T 20-19 final Report 1/9/1425H
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Average private sector salary (SAR)
Ownership and rental cost as a % of income
(EMI= Equated Monthly Installment)
5.11 Housing Preference by Geographic Location
Geographic preference tends to be divided into rural and urban preference more than regional preferences. Though the culture and mixed type of people across the main cities gave each city its own character, still urban Saudis generally prefer living in a villa. However, this issue is felt stronger in Riyadh then in Jeddah for example. The reason is that historically, many of the Saudi citizens of Jeddah are non originally Saudis (most come from other Arab countries, central Asia or Far East) which made them less opinionated to living in large villas/houses depending on the cultural heritage they have and the housing behavior of their place of origin.
In addition, Jeddah citizens enjoy openness onto the world since its establishment through its seaport and had a higher population density than Riyadh’s which necessitated that they live in apartments more than other cities in the kingdom.
As mentioned earlier, Riyadh population has a stronger geographical preference. Even within the city, original Riyadh and central region inhabitants prefer to live in central Riyadh and its Northern side which is considered more posh. The Southern part is more consistent of Saudi migrants from the rural areas of the South. Therefore, projects such as Al Qasr tend to be inhabited by local internal migrants to the city or expatriates. Fewer original Riyadh residents would prefer to reside in this part of the city, especially that Dar Al Arkan, as developer of the project targeted the middle income population, while middle income people do not want to live in the South of Riyadh. Q& A Session with Coldwell Banker – Saudi Arabia (Sat. June 20 th , 2009)
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A survey conducted by King Fahed University (Review of Saudi Housing, 2006) showed that Saudis still prefer to live in villas because of the privacy villas procure. However, Saudis who are unable to afford villas would choose to live in apartments as an alternative. Proximity to commercial areas, schools, and mosques is a necessity for Saudi households
5.12 Summary of Demand Estimates Demographic, economic and social factors are the most important determinants that would depict housing demand over the years
• High population growth rate: 2.5% CAGR; population expected to reach 33.8 million in 2020 • Young population: Majority of the population is under 30 years (working or ready to join work force) • Household size declining: 6.6 in 1992, 5.62 in 2007, expected to reach 5.2 in 2020 • Rising personal disposable income: Per capita GDP more than doubled to SAR 70,950 in 2008 from a modest SAR 32,900 in 2002 • Real Estate Development Fund (REDF) is anticipated to become a guarantor of customers to the private sector, as well as expected increased involvement of the private sector with projected introduction of the new mortgage law • Urbanization: Changes in lifestyle leading to development of urban centres for permanent residency with higher standards of living • Relaxed real estate law boosting the private sector’s enthusiasm for heavy investments in residential and commercial buildings • Increase in labour force (2.6% per annum) It is clear that the demand is real in the kingdom and not based on speculations like what happened in some neighboring countries. The real question would be: how big is the gap between the supply and demand and how much is the real demand?
The reason for questioning is that due to the relatively poor quality of building especially in the recent past, and due to the increase in income and social status of many Saudi families after the 1970s boom, many of what is considered “decent” above average neighborhoods witnessed a shift in demand and many of their original inhabitants moved to better location
If one may use the terminology, the average shelf life of some of the neighborhoods in the main cities does not exceed 20 years. That is mainly due to the total depreciation of the home, and while some middle income families were able to afford to move into such relatively high income neighborhoods (due to the economic boom), the original residents opted to move into other areas. That is clearly visible in the case of Riyadh for example, where the move has been and is continuing to go north of Riyadh. Such action creates void in those neighborhoods that are usually immediately filled by the middle income segments. Such cases happened in the Riyadh’s Batha area (old down town, which became a popular area), Malaz and Woroud neighborhoods, to name a few. This would somewhat decrease the estimated demand on average of every 10 years with more supply available. Batha for example moved from being the down town to become a middle income residential area to become today a mixed area with mainly the lower income segments and expatriate laborers residing there. As a whole, all main reports support the government estimates of a need of 1million housing units in the coming 5years (at average of 200,000 units per annum). On the conservative side, estimates would say there is a need of not less than 150,000 units per annum, which the private sector at current status does not have the capacity to fill.
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Villas and traditional houses currently dominate the housing market. Development is concentrated in three regions: Riyadh, Mecca and the Eastern Province
Distribution of housing units by type, region and tenure, 2007
Other* Others 6.4% Mecca 29% Apartment 33% Traditional House 27.9% 37.7%
9.7% 13% 24% 18.3% Duplex Eastern Province Riyadh Villa
Percentage of Units Owned Vs. Rented
Tenant 5.2% 20.0% 10.6% 10.0% 54.2% 41%
51% Owner 1.0% 35.7% 34.8% 11.2% 17.3%
Apartments Duplex Villas *Others: residential compounds, housing provided by employer, mainly at work location including: labor housing, Traditional Houses universities, major public and private hospitals, Saudi Others* Aramco, the national flag carrier Saudi, etc.
Source: Ministry of Economy and Planning, Population and Housing Census, 1425H (2004); and NCB, Saudi Housing Review, July 2007
Most households have a preference for villas and traditional houses which constitute around 46.2% of all housing units in Saudi Arabia.
The Islamic and Arabic styles have a significant influence on residential properties in Saudi Arabia; particularly those occupied by Saudi nationals. In addition, there is a trend in Saudi Arabia for home owners to get involved in the whole construction process of their houses, from choosing the land, design, hiring the contractors, negotiating material prices, and decorating the interiors.
Generally housing demand is concentrated in Riyadh, Mecca, and the Eastern Province. These regions capture most of the business and investment hubs within Saudi Arabia and account for the major share in most development plans.
On the tenure front, 45% of aggregate housing units stocks in Saudi Arabia are occupied on an ownership basis while 44% are occupied on rental basis.
Saudis usually go for ownership rather than rentals. Expatriates on the other hand prefer housing on rental basis especially in a limited legal foreign ownership scenario. Both Saudis and expatriates rent most apartments.
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Given the absence of a mortgage finance regulation, mortgage finance has been relatively low; individuals are unable to purchase houses, and are forced to rent, leading to a surge in rental inflation. With the anticipated passing of the mortgage law, we expect there will be greater demand for ownership of homes as compared to renting a unit
On a closing note to demand, the costs of maintenance and repairs have increased significantly over the period of 2000 2007 (increased by over 30%). This trend will continue due to inflationary pressure and a shortage of manpower in the semi skilled labour force of Saudi Arabia. This alone might be a deterrent for middle income segments to buy villas with expensive annual maintenance costs (rent at this stage would constitute a more suitable option). The short term impact of this trend would be an increase in prices which will adversely affect low income households. However, over the long term, when demand slows down, this will stabilize the price hikes which were seen in the last three to five years.
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6 HOUSING SUPPLY AND DEVELOPMENT (CURRENT AND EXPECTED)
Based on above demand analysis and the demographic/urban/economic pressures on housing demand, this chapter will try to shed some light on the supply side, the gap, plans as well as challenges.
According to Mr. Mazen Batergi, Vice President of Jeddah Chamber of Commerce (in a recent article published at Al Eqtessadiya newspaper in KSA dated 23/06/2009), the real estate investments in the kingdom have exceeded SAR 2 trillion.
Though these figures have not been verified in a nation wide on the ground study, according to many studies and experts in the real estate market (investors, real estate agents, academics, developers…etc.) the size of the real estate market as whole is not less than SAR 1 trillion (including the housing sector). However, above figures might have probably taken into consideration announced projects, part of which might not see the light, and some, if they do, might not be of same magnitude and delivered at same time frame as announced. Therefore, it would be wiser to be somewhat more conservative in the estimates.
According to a recent report by Jones Lang Lasalle, “Affordable Housing as Key Driver of Sustainable Growth in Riyadh”, the main challenge facing the Riyadh residential market is how to provide for the increasing shortfall in affordable housing. Currently there are less than 3,000 completed housing units readily available and only 4,000 serviced plots ready for construction by families.
Demand for housing in Saudi Arabia has been relatively unaffected by the global credit crunch as new real estate investment funds are being created to develop residential properties in Riyadh and other main cities in partnership with local landowners, constituting an early indicator of possible increase in the supply of housing.
The major remaining question from a supply point of view is: where are the relatively small number of experienced/inexperienced house builders in the local market and whether they will be able to keep the market share and fill in the gap.
• Between 1992 and 2007, the cumulative number of housing units in Saudi Arabia increased at a CAGR of 3% and reached 4.32 million in 2007.
• The annual supply in housing units is assumed to be the difference between the cumulative number of housing units in two consecutive years.
• Between 2004 and 2007, an average of 117,000 new housing units were supplied per year by all developers.
• In 2007, there were around 3,500 real estate developers in Saudi Arabia.
Another concern is that would be the scheduled housing plans and their impact on the supply:
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Above MEED’s graph of scheduled large real estate projects show that the gap may be narrowed down significantly by 2028, where most of the large phased projects are expected to be completed. At that stage a shift in the supply demand gap is expected with prices stabilizing and perhaps decreasing, if any. The fact remains that all is subject to actual fulfillment and implementation of planned projects.
According to Markaz (June 2009) study, the demand level will go back to previous levels (prior to the global crunch) as soon as the economy revives, The passing of mortgage law will shift the demand trends to a level 50% higher than the levels without the law cumulatively. The following demand/supply forecasts are based on 3 different case scenarios: the last one (No.3) being least expected due to expected improved oil price while the mortgage law is expected to pass by end of 2009.
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Kuwait Financial Centre “Markaz” – June 2009
• The Saudi real estate market is driven by demand fundamentals that are not set to change in the foreseeable future. The demographic fundamentals, combined with the strong performance of the economy, would sustain the growth in the real estate sector. Furthermore, real estate and construction sectors are at the forefront to take advantage of the government’s diversification plan away from the volatile oil sector.
• Of particular importance are the economic cities which would constitute mega construction projects of all types and are expected to spur real estate activity within Saudi Arabia. It is wise though to wait and see what would be the outcome or fate of such mega projects (including economic cities). In case of any downsizing (if any), one should reassess to which extent and magnitude of its impact on supply.
• There are however, growing concerns over a looming housing supply/demand imbalance in Saudi Arabia’s housing market, given rising demand and affordability limitations among the country’s rapidly growing middle income population. The various initiatives undertaken by the public and private sectors, which provide low cost housing financing to Saudi nationals, have alleviated some of the pressure on the market thus far.
Existing Housing Stock
• According to a study conducted by Euromonitor, the housing stock was divided into the following segments: Households by type of dwelling “house”: This includes the “detached house” which is a single dwelling not attached to any other dwelling or structure (except its own garage or shed). A single detached house has open space on all sides, and has no dwellings either above it or below it; and “semi detached and terraced house” which is one of two dwellings attached side by side (or back to front) to each other, but not to any other dwelling or structure (except its own garage or shed). A semi detached dwelling has no dwellings either above it or below it, and the two units together have open space on all sides. Terraced house A dwelling in a line of dwellings attached to and adjoining one another and planned and built as one unit.
• Households by type of dwelling “apartment”: Which is a self contained dwelling unit that occupies only part of a building. A room or suite of rooms designed as a residence and generally located in a building occupied by more than one household
Households by type of dwelling “other”; which is another type of dwelling used as a place of residence (mobile dwelling, summerhouse and etc) Housing Stock Indicators 2004 2005 2006 2007 2008 Household by type of dwelling (House) in 2,512.1 2,617 2,723.1 2,830.4 2,939.1 ‘000 Household by type of dwelling(Apartment) 1,176.3 1,208.4 1,239.8 1,270.7 1,301.1 in ‘000 Households by type of dwelling 301.5 304.7 307.1 308.8 3,09.8 (Other) in ‘000 Source: National statistical offices/Euromonitor International
By the end of the housing plan in 1999 the number of housing units was (3,126,540) Units. From these units, the private sector established (2,881,000) units (92%). The remaining (8%) were established by a number of government sectors and the Ministry of Public Works and Housing. Source: The Study of the Condition of the Real Estate Market in Saudi Arabia Prepared by King Saud University Research Center
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According to an article from Al Iqtisadiyya newspaper regarding a study done by the Research and Studies Center in the Chamber of Commerce and Industry in Riyadh it showed the following:
• The Real Estate Development Fund's contribution in the construction of housing in Saudi Arabia is at about 8%. While banks and financing companies have contributed 6%, indicating that the self financing contribution to construction is the highest at about 86 %.
• The study also indicated That the issue of housing is a bigger problem that the Fund alone cannot solve, in spite of the funding that the REDF received of nine billion riyals to support its capital.
• The study also mentioned that the absence of a comprehensive view of the housing in its reliance on individual initiatives, which do not achieve a balance in supply and demand has contributed to the worsening of the housing problem, in addition to the scarcity of housing finance mechanisms and the dependency of individuals on the Real Estate Development Fund, which led to more demand and confusion in the process of funding due to the inability of the Fund to respond to such large requests.
Achievements of the Six Five-Year Plan (1390–1420H) – (1970-1999G) Executing Party Accomplished Percentage of Total
Government Housing 245,540 7.9
Ministry of Public Works and Housing 24,540 0.8
Other Government Sectors 221,000 7.1
Private Sector 2,881,000 92.1
Financed from REDF 573,000 18.3
Self Financing 2,308,000 73.8
The census that was conducted in 1973 showed that the total number of housing units were (1,133,039). That number increased in the census that was conducted almost 20 years later in 1992 bringing the number of housing units to (2,776,922) with a 145% increase.
Top three regions with the highest numbers of housing in 1992: • Mecca: 811,199 = 29.1% of total
• Al Riyadh: 611,499 = 21.9% of total
• Eastern Region: 372,274 = 13.3% of total
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In the year 2000, total estimated housing stock was at approx. 3.43 million as follows:
Total Number of Housing Types in the Kingdom in 2000 Total Housing Traditional Villa Floor in a Villa Apartment Other Housing
Kingdom 3,427,670 1,023,112 693,672 311,536 1,121,178 279,371 Total
% 100 29.8 20.2 9.1 32.7 8.2
Source: King Abdul-Aziz City of Science & Technology. Study # AD 20-19 final Report 1/9/1425H
The breakdown of above Housing Units achieved During the Five-Year Plans (per plan) Number of Units Year
1975 1979 254,600
1979 1984 437,000
1984 1989 172,600
1989 1994 393,200
1994 1999 283,000
The following section shows estimated housing stock per region from 2000 2007:
Distribution of Housing Stock by Region
As above graph shows, apartments outgrew villas during 2000 04, which is explained by the growth in expatriate population during this period. Given the outlook of Saudi domination in population growth, villas
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should be the preferred form of housing development in Riyadh, though there is a possibility of trend shift towards apartments. During the years 2004 07, stock of apartments grew at the rate of 3.7%, while the apartment demand (17% of Saudis and 56% of expats) grew at 1.5%. However, the average household size in apartments increased from 4.14 in 2004 to 4.49 in 2007, growing 400 basis points more than the growth in average household size in Riyadh, which indicates that, Saudis increasingly prefer staying in apartments and we expect the percentage of Saudis staying in apartments to rise from 17% in 2007 to 20% in 2012. Kuwait Financial Centre “Markaz” – June 2009
Total number of housing units in 2007, stood at 4.7 million units, consisting mainly of the following types:
• Villas (detached): Usually surrounded by a high wall and exterior walls to offer privacy to the family. Also includes a private garden or outdoor area. Often have separate entrances, visitor rooms for men and women, garage entrances and a door which leads to the family driver's room. There are many gates leading into one family home. Detached villas are generally funded by REDF loans or private savings.
• Apartments: Located in stand alone buildings (usually three storey) or over store fronts. Apartments are built by real estate developers and are generally funded by government or private investors.
• Attached homes / Duplexes/ Traditional homes: Saudis often live in extended family groups, with several villas attached to one another behind a single "compound" wall. Within one set of villas there may live grandparents, unmarried children, married children with their families. These types of homes have generally been funded by collective family savings .
• Worth mentioning that though traditional homes still contribute to a relatively large percentage of existent stock, to our knowledge, they are declining and no longer being constructed. The new available option would be to build a villa with the look and feel of a traditional house.
The housing stock in Saudi Arabia is currently estimated to be over 4 million units, consisting mainly of villas and apartments
Major types of housing units in Saudi Arabia
Types of Housing
Villa Apartment Attached Homes / Duplex
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According to Colliers International (Real Estate Overview, Q4 2008), the most preferred housing unit for home owners is the villa (over 80% of villa residents own the unit), followed by traditional houses (with almost 60% of their residents own the unit). The latter is a natural legacy of the old housing system. A floor in a villa has also a good preference, especially to the Saudi population that wishes to own a villa but cannot afford one (over 50% of the residents own the unit). The apartment ownership level remains low (at 20%). That is mainly due to the large rental market for apartments by both expatriate population as well as Saudi population that reside out of their hometown or cannot afford a floor in a villa.
Colliers International – Saudi Arabia Real Estate Overview Q4 2008
6.1 Quality of Housing According to our interviews, the housing quality is improving. Due to the lack of building codes, some developers use international standards in building. Going forward, building quality will improve, which would also improve the quality of the surroundings. Urban planning is an issue, however some efforts are being made to properly design the future scope of the main cities (this started with Riyadh – through the High Commission for the Development of Riyadh City, expected to follow soon in Jeddah where a new commission is being launched soon and then the rest of the main cities to follow later on). Both abovementioned conditions, combined with a proper building code would bring homes to appreciate, and hence improve the secondary market. ( Interview with Dar Al Arkan) The challenge is that building codes are not enforced. There are no rules/regulations for building codes yet. ( Interview with Mr. Salman Bin Saedan, Salman Bin Saedan Group, 21.06.2009)
6.2 Saudi Arabia’s Building Codes
Building codes establish minimum standards and ensure structural soundness. Such codes ultimately improve projects’ average lifespan and safety, and serve as an integral component of achieving city planning objectives, by addressing issues ranging from traffic flow to noise mitigation. Saudi Arabian developers (especially the small entrepreneurs) have grown accustomed to building lower quality projects, which allow them to earn high profit margins. The poor quality of real estate in the Kingdom stems from inadequate building codes and enforcement of existing regulations.
The issue of poor building quality has become more evident in recent years, as large foreign developers have entered the Saudi Arabian real estate market, setting examples of superior standards. Local
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developers simply lack experience in constructing world class projects; without strict code enforcement, they have not developed the capabilities to produce top quality buildings at a low cost. Main large Saudi developers along with other GCC firms, such as Emaar, have adopted international standards.
Most Saudi Arabian companies however, have not received wide exposure to international best practices. Recent experiences with international developers have educated local consumers in global quality standards, and they are now demanding higher quality products at competitive prices. To keep pace with foreign companies, Saudi Arabian developers will need to become more sophisticated in their project design and execution.
The Saudi Building Code National Committee (SBCNC) was created by Royal Decree in 2000 to develop a unified building code, and to update it as building practices evolve. The committee consists of officials from various universities and ministries, including the Saudi Arabia Standards Organization (SASO), and MOMRA, which is responsible for enforcing the new building code. While the code has yet to be launched, SBCNC has signed a memorandum of understanding with several internationally recognized quality assurance bodies, from which it will draw on best practices to develop the code:
• International Code Council
• American Concrete Institute
• American Society of Civil Engineers and the Structural Engineering Institute
• National Fire Protection Association
• American Society of Mechanical Engineering
• American Institute of Steel Construction
The code will be released in the near future, in three separate stages. Phase 1 stipulates optional implementation from 2008 to 2010; Phase 2 mandates gradual implementation from 2010 to 2015; and Phase 3 enforces mandatory compliance after 2015. (Source: Ministry of Municipal and Rural Affairs)
Saudi Arabia is taking a step in the right direction by working with international organizations to improve national building codes to world class standards. In developed nations, even codes related to minor issues are written in extreme detail and can constitute multiple pages of legislation. A similar approach will allow the Kingdom to develop international best practices and improve areas of concern typical in developing markets, such as: Lack of proper exits, the need for sprinkler systems, and limited accessibility for the disabled.
The Saudi Arabian government has taken measured steps to create a new set of building codes that meet internationally recognized standards. Unfortunately, the current plan does not mandate compliance until 2016. To force adoption of these rules by the private sector while the boom in new development projects persists, and to ensure that new construction in the Kingdom meets the highest international standards as soon as possible, the government should consider making the code mandatory in the near future. Prompt implementation is particularly important in light of the vast development scheduled over the next few years, with such megaprojects as the Economic Cities. SBCNC should take the Economic Cities as its first opportunity to fully implement the new code, which it can apply from the start of construction.
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Standardization and, perhaps more important, enforcement of consistent building codes will improve the quality and consistency of development across the Kingdom.
All government employees responsible for using and enforcing the building code, predominantly at MOMRA, need to be properly educated in the new regulations. Adequate training, a weakness of the current system, is essential to enforcement. SBCNC can identify all private sector stakeholders affected by the code – including business owners, engineers, architects, project managers, and trades people – who require programs to educate new and existing employees. MOMRA and SBCNC should also work with their international building code partners, the Ministry of Higher Education, and the Technical and Vocational Training Corporation to design curriculum that equips graduates with the new standards. SBCNC ought to roll out the codes and relevant training throughout the Kingdom, in coordination with municipal offices in each region. Education for both public and private sector personnel should be offered in all regions, to ensure high construction standards across the country. Where the private sector fails to comply, regulations need to be clearly and consistently enforced. Business owners and employees must be able to forecast approvals, and be informed about the repercussions of non compliance. The National Competitiveness Center – The Real Estate Sector in Saudi Arabia July 2008 6.3 Housing Conditions
With regards to building materials 80.8% of housing units are built with reinforced concrete 17.1% of houses built with bricks, 1.1% of houses are built with mud and 0.3% built with tin and 0.8% built with rocks. Source: King Abdul-Aziz City of Science & Technology. Study # AD 20-19 final Report 1/9/1425H • The average age of housing buildings are 15.6 years with a standard deviation of 10 years.
• Buildings that are less than 10 years constitute 30% of the market
• Buildings that are less than 10 19 years constitute 40.5% of the market
• Buildings that are less than 20 29 years constitute 20.7% of the market
• Buildings that are 30 years or more rest at 8.7% of the market Source: King Abdul Aziz City of Science & Technology. Study # AD 20 19 final Report 1/9/1425H
Villas are large enough to accommodate the traditional large size Saudi families, while apartments are smaller units preferred among non-Saudis and young low-income Saudis
Indicator (2005) Villa Traditional house Duplex Apartment
Average unit area (sqm) 821 320 325 182
Household size (number of persons per 8.4 5.4 6.4 4.9 family)
Area per person (sqm) 98 59 51 37
Average total number of rooms 12 6 7 5
Rooms per person 1.47 0.97 1.21 1
Persons per room (PPR) 0.68 1.03 0.83 1.00
Persons per bedroom (Standard PPR) 1.65 2.12 2.22 2.24 Source: King Fahed University, A Review of Saudi Housing prepared by Dr. Farigi, 2006
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• These results are based on a survey of 800 households, which was carried out in the six major cities of Saudi Arabia.
• Large size villas (800 sq.m) have traditionally dominated the Saudi market. Spacious by nature, they easily lodge the large size traditional families (more than 8 persons per household).
• Apartments are smaller units (180 sq.m), that are preferred by the expatriates and the new generation.
• However, Saudi Arabia is witnessing a preference for small villas (on average 450 sq.m accommodating 4 to 6 bedrooms) rather than large ones (on average 800 sq.m). This type of villa is preferred among the newly constituted families which tend to be smaller in size.
6.4 New Housing Supply & Plans
In anticipation of the mortgage law, and given the country's robust demographics, some firms have pressed ahead with housing or housing finance projects.
A local developer, Jenan Properties, said in late May that it was planning two projects worth a total of SAR5bn (US$1.3bn), which would open in 2013, when the firm expects the economy to have recovered from the current slowdown. The projects in question are a SAR1bn residential complex in Khobar, in the Eastern Province, and a SAR4bn seaside resort on the Gulf coast; financing has yet to be secured.
In mid May, Samba Financial Group, a local bank, signed an agreement with the state controlled Saudi Electricity Company (SEC) to provide Sharia compliant housing finance for SEC employees. The Economist Intelligence Unit, ViewsWire, June 3 rd , 2009
Increased construction activity underway across the kingdom, with Riyadh as one of the real estate investment locations of choice within Saudi Arabia
Number of building permits issued by type 60,0 00 Othe 50,000 r Commercial and Industrial 40,000 Residential
30,000
20,000
10,000
2000 2001 2002 2003 2004 2005 2006 2007
Building permit division by area Riyadh, Mecca, 2000 2005 and Eastern Riyadh Province account 20% 24% Mecca 20% for more than 60% 34% of construction Medina activity in Saudi Al Qaseem 13% Arabia 21% Eastern Province . 16% 19% Other 6% 9% 8% 12%
Source: Saudi Arabia Real Estate Sector February 2008 – Global Investment House
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Foreign investors have also identified Saudi Arabia as an area of opportunity and have already begun to invest significantly in the Saudi real estate sector, with real estate taking around 10% share of all FDI stock in 2006 (Global Investment House, Feb. 2008). This percentage is expected to increase, especially after the issuance of the anticipated mortgage law:
• For a country in which the real estate sector only contributes to 6% of its total GDP, Saudi Arabia is receiving a substantial amount of foreign investments in its real estate sector.
• Foreign investments in the Saudi real estate sector are expected to increase as the market grows over the coming years at an expected rate of 5% annually, especially if and when the regulatory framework is built, and the conditions to establish foreign investments in the kingdom get more and more encouraging. Many international developers and investors are already looking to enter the Saudi market as it is considered a less risky alternative to other emerging markets in light of the global markets performance.
• Real estate investments comprised 10% of FDI stock for 2006 and 4% of the inflows for that year.
• In dollar terms, Saudi Arabia received more than US$ 5 billion (SAR 18.75bn) in real estate investments from 2006 FDI stocks and more than US$ 700 million (SAR 2.63bn) in real estate investments from 2006 FDI inflows.
Real estate activity in Saudi Arabia is buoyant as average demand for housing outstrips supply, resulting in prices increasing significantly
• Building permits as a proxy for construction activity in Saudi Arabia reported a CAGR of 11.1% over the period 2000 2005. This was a direct result of the huge increase in total building permits issued during the year 2005 reaching a peak of 55,369 permits. The year 2007 recorded a sharp 32.8% decline in issued permits reaching 36,214 permits, almost the same level as 2003.
• Bank credit for building and construction amounted SAR 44.8 billion in 2007 (7.9% of total bank credit) and is expected to reach SAR 87.6 billion in 2013.
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• Residential permits continued to account for almost 90% of issued permits over the period 2000 2007.
• Currently, the Saudi real estate market is undergoing a period of increased demand as well as unprecedented construction activity. The residential market is suffering a supply shortage especially for the low and middle income housing class. This increased demand and short supply scenario has driven housing prices to rise over the last period.
• Recent research estimates point to an average annual price hike of 9% in Saudi Arabia’s residential segment between 2002 and 2005 backed by the undersupply scenario (selling, as rent went even higher)
• Worth to note that much of the pricing is speculative and not based on international acclaimed pricing system.
• Villas and traditional houses constitute the majority of housing units in Saudi Arabia. These villas are large with numerous bedrooms and are land intensive. However, with continued growth in the cost of land, this type of property is increasingly becoming financially unattractive, resulting in a greater demand for apartments.
• Apartments are slowly becoming more popular in Saudi Arabia, with demand originating mainly from expatriates, small families, and newly married Saudis.
• It is expected that demand for smaller housing units (mainly apartments) would continue to grow as young income sensitive Saudis enter the job market leading to the need for more affordable housing.
• The next few years would experience a decline in traditional rural houses and a shift in consumer preferences towards duplexes.
• With the removal of an earlier cap on the height of buildings in Saudi Arabia, the demand for high rise buildings is expected to increase, leading to more verticalization in Saudi Arabia.
• The share of expatriates of the total population would probably remain stable for the next fifteen years. While the Saudization of the workforce might hinder expatriate employment, the expansion of the non oil sector and its consequential demand for expatriate labor will offset it.
• Decrease in the expatriate population would hinder the rental segment, predominantly, the apartment
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type.
• Despite above trends in housing demand, current supply from the private sector is facing some financial challenges and hurdles: due to the affects of the global crunch, banks and finance institutions are less enthusiastic to finance small to medium enterprises across the industries and disciplines, housing sector included. This is exercising pressure on the small developers (whom constitute the majority of the developers in the kingdom with biggest market share of supplied units). This would affect the supply on the short run, impact and magnitude of which are yet to be determined.
On average 156,000 units would be delivered annually till 2020, leaving a gap of around 65,000 units per year
Total supply of housing units, Demand Supply gap, 2008 -2020 2008 - 2020 (Housing units in ‘000s)
Total number of supplied housing units Demand Scenario Suppl 200,000 300,000 y
250,000 150,000 200,000
100,000 150,000
100,000 50,000 50,000 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sources: SAMBA, The Real Estate sector in Saudi Arabia , April 2006 ; D eloitte Analysis
• The estimated supply for housing units in 2008 stands at 130,000 units. Approximately 30% of the supply is being made by 20% of the developers (the major players such as Dar Al Arkan).
• Total number of supplied housing units is expected to grow at a 3% annual rate in parallel with the growth in suppliers. In 2020, around 185,000 housing units will be released into the market.
• Demand for housing units is not being fully satisfied, the average shortage in supply would be over 65,000 units until 2020.
• This gap is expected to remain uncovered across the following years, as the growth in supply is smaller than the growth in demand generated by improving living standards.
• The residential market is not meeting current supply shortage, especially for low and middle income housing classes, which varies between 150 sq.m and 450 sq.m. Given that more than 70% of the population falls within said income category, supply shortage is visible.
• Saudi Arabia has a good supply of upper middle income and high income housing units, which are larger than 450 sq.m, as they are largely being custom built.
In recent news (Al Aswaq.net, June 14 th , 2009), EMAAR one of the leading mega developers of the region (Dubai based and established a company for the development of King Abdullah Economic city in Jeddah), announced its launch of the “Hawadi” project, a residential project over a 9 square kilometers within the economic city targeting the middle income segment.
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The project plans is to build about 22,000 housing units with a population capacity of 60,000.
Work is expected to start at end of 2009 (phase 1 of the project) and housing units prices range between SAR 200,000 and SAR 1,000,000. It is worth to note that the bottom price though targeting the middle income might also target the lower income segments (a loan with LTV of 90% and 20 years tenure would require a minimum income of be less than SAR 5,000).
Analyzing the pricing in the above project shows that the bottom price of apartments in King Abdulla Economic City falls behind the range of what normally middle income segment would go for. Nonetheless, the quality of the construction and of the design is most likely to be within the range. The variance in the price would be attributed in such a case to the location of the economic city (outskirts of Jeddah city) where the city is literally being built from scratch. Another reason is that the government is trying to redistribute the population to ease up the congestion within the main cities.
6.5 Land Availability & Prices
Recently, on average across the kingdom, land prices double every 5 years. It might not yield 20% per annum, but the aggregate across the 5yrs doubles the land price.
According to recent laws, if the raw land is recently purchased by the developer and now is in the process to invest in it, he must build the infrastructure. However if the raw land was purchased prior to this law (which is 5 10yrs. ago) then the responsibility to build and connect the infrastructure lies with the government
The building area should not exceed 60% of the land size. The built up area (BuA) would ideally be 2 stories high and an annex (2.5) for typical villas and/or duplex. Alternatively, the services area should not be less than 40% of plotted land area.
One major issue or concern is that the title deeds need to be organized. Though to give credit, great efforts have been made by the government in this regard, and more initiatives are expected to organize the deeds. Average land prices across the major cities: Type of Land Riyadh Jeddah Dammam/Khobar Serviced SAR 300 400/sqm More than Riyadh More than Riyadh Un-serviced SAR 100 300/sqm More than Riyadh More than Riyadh
Average Villa prices across the major cities: Home (Villa) Riyadh Jeddah Dammam/Khobar Average Size (250sqm) SAR 550,000 1,200,000 (ranges More than Riyadh (same More than Riyadh by geographic area – e.g. North applies for RENT ) (same applies for RENT ) Riyadh one of the most expensive areas, while South Riyadh the least…) *One remark is that though both Jeddah and Dammam/Khobar are on the sea and get the construction material at direct cost from the seaport (minimum transportation fee versus Riyadh which requires considerable transportation as it lies in the central region) still the prices there are higher. One of the reasons is Jeddah's difficult terrain/nature for e.g. to construct on, which makes it more expensive. Interview with Mr. Salman Bin Saedan, Salman Bin Saedan Group, 21.06.2009
Distribution Percentage of Residential Sold Land and Commercial Sold Land (1999)
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City Residential Land Commercial Land Total % Riyadh 80.1 19.9 100
Jeddah 88.8 11.2 100
Mecca 58.7 41.3 100
Medina 74.4 25.6 100
Dammam 85.6 14.4 100
Tabouk 73.3 26.7 100
Khamis mshait 59.1 40.9 100
Al Khobar 81.8 18.2 100
Average of (17 cities) 81.1 18.9 100 Source: King Abdul-Aziz City of Science & Technology. Study # AD 20-19 final Report 1/9/1425H
As shown in the above table, the kingdom’s largest cities (Riyadh, Jeddah and Dammam) the highest percentage of sales were sales of residential land, Jeddah being the most with (88.8%) followed by Dammam with (85.6%) then Riyadh with (80.1%). It is also noticed that cities like Mecca and Khamis Mshait have a high percentage of sales for commercial land compared to the Kingdoms big three cities. Source: The Study of the Condition of the Real Estate Market in Saudi Arabia Prepared by King Saud University Research Center
6.6 Construction Related Cost 1. The current minimum cost for infrastructure (sidewalks & pavement, lighting, water and electricity…) is no less than SAR 50/sqm at minimum. 2. Cost to build and connect the infrastructure into a plotted land has increased over the past few years: Some high end areas (especially in new cities or medium size projects such as Durrat Al Riyadh) would reach SAR 300/sqm (excluding sewage system). With sewage system it might go up to SAR 450/sqm (in other words, in such high end relatively remote areas, sewage system would cost around SAR 150/sqm).
Prices of Land (average)/sqm: Riyadh Jeddah Dammam/Khobar SAR 500 1,500/sqm (could range from SAR 400/sqm SAR 600 2,500/sqm SAR 500 1,500/sqm for raw unserviced land to SAR 3,000/sqm in posh areas such as Khozama)
Cost of Construction of Housing (average)/sqm:
Riyadh Jeddah Dammam/Khobar SAR 800 1,500/sqm (excluding the mansions) SAR 900 2,000/sqm (with Jeddah having SAR 900 2,000/sqm more floors per building as it witnesses more housing pressure)
Q& A Session with Coldwell Banker – Saudi Arabia (Sat. June 20 th , 2009), Meeting with Mr. Mohammed Al Joujou, Appraisal Management Manager
3. The main owners of the available land are either the government, renowned landlords and investors, or large developers that only buy and sell land after developing it (plot the land with infrastructure)
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Saudi property prices trend:
1. It is expected, amid strong demand, that Saudi real estate prices will continue to appreciate by around 8 – 10% per annum
Property Prices in Jeddah, Riyadh and Eastern Province, October 2008
Unit Jeddah Riyadh Eastern Province
2BR: SAR 440,000 – 530,000 SAR 400,000 – 480,000 SAR 350,000 – 420,000 Apartments* 3BR: SAR 600,000 800,000 SAR 550,000– 700,000 SAR 500,000 – 600,000
Villas ** SAR 1.70 – 1.90 mn SAR 1.40 – 1.70 mn SAR 1.00 – 1.40 mn
Land 1,700 – 2,500 / sq meter 2,000 2,800 / sq meter 1,800 – 2,500 / sq meter * Assuming small apartment size of 100 200 square meter and large apartment size of 200 400 square meters **Assuming a villa size of 400 500 square meter. Source: Deloitte Research
2. According to Al Hayat newspaper published on 27th of October, 2008, the average small apartment prices range between SAR 350,000 600,000 and varies according to the area and the space. Meanwhile, the prices of new large apartments at an average space between 400 600 sq/m range between SAR 1 1.5 mn 3. According to Riyadh Newspaper published on November 2, 2008, the average price per housing unit was SAR 600,000
Average area for lands and investment factor:
The number of building licenses that have been issued in the kingdom from 1987 – 2000 was 476,059 building licenses. A total area of 513,896,359 sqm with an average size of land of 1,100 sqm, with an investment average of .59 which is equivalent to building a one floor house on a piece of land that has an area of 1,100 sqm (a 59% building on land percentage). Source: King Abdul-Aziz City of Science & Technology. Study # A T 20-19 final Report 1/9/1425H
Housing Land Per Capita: 1. The average housing land per capita in Saudi Arabia from 1993 – 2000 was 65.46 sqm/person. Source: King Abdul-Aziz City of Science & Technology. Study # A T 20-19 final Report 1/9/1425H
2. In 2004 the average cost of a residential building with land was SAR 849,587 while the average cost of land alone was SAR 206,284 (34.9% of total). 3. The average cost of a one floor villa was SAR 784,895 and the average cost of a full villa is was SAR 1,081,191 while traditional houses averaged at SAR 305,330. Average area of land & Price per sq.m (2004) 4. Apartments went down to 181.8 sqm. (2004)
6.7 Volume of housing construction It is difficult to estimate the volume of the housing units under construction due to the following reasons:
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• The major players in housing construction are the small entrepreneurs and individual developers (capacity of 20 40 units/annum). Those players are many (estimated in the thousands), and some are not fully dedicated, but have their own full time day job. Those small developers are said to have around 98% of the market share for middle income targeted segments housing units. Such developers do not usually declare their projects per say, and estimating their units under construction proved to be at risk of having misleading information. • Many of the announced projects are more of an advertising campaign. Since financing is getting more difficult even to large developers. Many of such announced projects are estimated to either come to a stall and get delayed, or stop altogether.
Major developers accounted for 16% of housing units in Saudi Arabia in 2006, however this proportion is expected to increase in coming years
Developers by Type and Region, 2006 1
Central Western Eastern Total % of total Housing units % of total housing Developers Type Region Region Region developers developers delivered units delivered
Major Developers 14 5 1 20 0.7% 16,000 16%
Commercial 55 45 10 110 3.6% 24,750 26%
Private 185 160 55 400 13.2% 25,000 26%
Small / Unregistered 950 850 700 2,500 82.5% 18,750 19%
Government 2 1 0.03% 12,550 13%
Total 1,204 1,060 766 3,031 100% 97,050 100%
Despite representing only 4.3% out of total developers, they deliver 42% of housing units. Potential alignment with these Developers.
1 As per the latest data available 2 Government includes the Ministry of Public Works and Housing Source: Dar Al Arkan IPO; Deloitte Research
• The majority of developers in the kingdom are small medium size developers consisting of commercial, private and small unregistered developers accounting for some 71% of the new housing units constructed in 2006 • With 16% of units being delivered by major developers, mortgage companies shall spend more efforts in qualifying developers to finance their units. There are some 20 major developers in the kingdom. With the launch of mega projects and community based developments, it is expected that major developers such as Dar Al Arkan and Emaar will account for a larger proportion of the housing units developed • The government usually contracts the private sector to construct the housing units they intend to offer. Some large developers have both commercial and residential projects, whereas smaller developers are generally more focused on residential housing units.
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6.8 Housing Market Suppliers In addition to the government, the kingdom has private and charity housing schemes
The main housing suppliers can be categorized into government and public sector player (MOMRA, GHA, REDF…), private sector players (Developers, contractors, construction companies, Real Estate Agents,…) and charitable/non profit organizations:
The housing sector witnessed various schemes that are divided into private sector schemes, governmental, and charity as follows: Private Schemes: Saudi ARAMCO: Established a Home Ownership Program for its Saudi employees in 1952, allowing employees to borrow funds to build or purchase homes for themselves. This scheme was focused on the Eastern region and was successful. By 2006, some 54,700 units had been built through this program SABIC Government Schemes: Ministry of Public Works and Housing (previously, now GHA): The Ministry of Public Works and Housing and other government agencies also undertake construction of housing units. These are normally given to Saudi employees as part of employee housing schemes, paid back over several years. Other Government Agencies Charity Schemes: King Abdulaziz Establishment for Development Housing Sultan Bin Abdelaziz Charitable Establishment Emir Salman bin Abdelaziz Housing Establishment Prince Walid bin Talal Program Saudi Arabia also has several charitable establishments, such as the King Abdulaziz Establishment for Development Housing. These establishments essentially construct development housing for lower income citizens and provide these to requesting citizens as a grant
• Real estate investors are mortgage investors in KSA. Globally, real estate investors would include Real Estate Investment Trusts (REITs). REIT regulations are not in place in the Kingdom. We ignore banks and mortgage pure plays in our value chain diagram given that current exposures to real estate do not contribute materially to the bottom line. However as discussed earlier, the expected new mortgage law will change the environment making the sector a key area of focus for these institutions • Real estate developers include Makah Constructions, Taiba, Jabal Omar, Dar Al Arkan, Emaar Economic City, Arriyadh and Akaria. These companies enjoy bargaining power and have exceptional margins in the range of 50 70%. Note that Emaar Economic City and Jabal Omar are still at nascent stages of development. Some of the master developers have near monopoly power – specially in the holy cities of Mecca and Medina, where foreign investment is restricted • Real estate material suppliers include cement companies and other construction materials suppliers. NCB Capital – Real Estate Sector, Kingdom under construction, June 2008
.
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6.9 Charity & Non-Profit Organizations Sector Charity Work:
From the conducted interviews, some of the housing experts mentioned that there are some great and huge charity projects, yet their execution might create some issues. When one creates a “poor home” for the “poor people”, this would most likely cause social problems (at risk of becoming a shantytown)
Social housing is not only about walls, ceilings, and floors. It is a complete social project. Housing is one component of the social project. Education, human and social development are other aspects (among others) that must take place. Bottom line: Design of charity projects should not lead to segregation, labelling and social stress in the community. Interview with Dar Al Arkan.
The main charitable organizations are:
King Abdullah Bin Abdul Aziz foundation established in 2002 to provide housing for the needy areas in the Kingdom. Since establishing the foundation it has accomplished the following: 1 Visited housing charities and development projects in different areas in the Kingdom, to benefit from them by studying and analyzing them. 2 Collected information and official statistics available to locate the areas and families that are in need. 3 Conducted primary field surveys in several areas in the Kingdom to identify the locations that need more housing developments projects. 4 Located suitable areas for housing development projects. Goals & strategies of the foundation: The foundation’s goal was to ensure housing to the neediest groups in the Saudi community by performing the following: 1 Define and categorize the neediest group of the community by income level, the quality of living and the size of the family members. 2 Develop a priority schedule for the foundation’s activities to clarify the neediest areas. 3 Establish activities through programs that cater to the following: - Motivate the targeted categories to stay in their areas and not move out. - Make those categories capable of helping themselves by themselves. - Expand the chances of moving from an activity with a low income to a higher income one. - Provide ways for specialized lending to establish small productive local projects for those whom benefit from the services of the foundation.
The most important goals for the housing development Projects: 1 Avoid community problems that could surface in the group housing. 2 Encourage the people to survive and go on with their lives and to merge with their community’s local habits. 3 Minimize internal migration from remote areas to cities through enabling the citizen of having a good chance of a decent life. Source: Housing Development “Hope for whom that have no housing”. Dr. Ali bin Salem Bahammam 2008
Number of projects for each housing charity: The Foundation of King Abdullah Bin Abdul-Aziz Projects: 1 Shaba’an Village Project. Located in Tabbouk
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2 Al Hasea Village Project. Located in Tabbouk 3 Al Ghalah Village Project. Located in Makah:
The housing units of all three projects have a standard design: Number Unit Cost Size of Size of Project Name Size of Project of Units (in SAR) Unit Land Unit Shaba’an Village 250,000 SQM 48 186,500 SAR 396 SQM 170 sqm Al-Hasea Village 120,122 SQM 40 186,500 SAR 396 SQM 170 sqm Al-Ghalah Village 250,000 SQM 186 186,500 SAR 396 SQM 170 sqm
The Foundation of Sultan Bin Abdul-Aziz Charity Projects: 1 Tabbouk Housing Project. Located in Tabbouk 2 Al Ha’et Housing Project. Located in Ha’il. 3 Al Kahmah Housing Project. Located in Aseer. Size of Size of Number of Unit Cost (in Size of Unit Project Name Unit Land Project Units SAR) (sqm) (sqm) Tabbouk 132,000 SQM 100 202,500 630 225 sqm Al-Ha’et 160,228 SQM 147 (a) 125,500 340 (a) 123 (b) 166,500 (b) 192 (c) 212,000 (c) 246 Al-Kahmah 136,800 SQM 100 NA 600 176
The Foundation of King Faisal Charity Projects: 1 King Faisal Charity Village Project. Located in Aseer. 2 Al Hareedah Housing Project. Located in Aseer.
Size of Number of Unit Cost (in Size of Unit Project Name Size of Unit Project Units SAR) Land King Faisal 60,000 SQM 60 120,000 400 sqm 95 sqm Charity Village Al-Hareedah 360,000 SQM 200 NA 400 sqm 135 sqm
Prince Sultan Charity Housing Projects: 1 The First Complex. Located in Riyadh. 2 The Second Complex. Located in Riyadh. 3 The Third Complex. Located in Riyadh 4 The Forth Complex. Located in Riyadh. 5 Al Gihma Housing Project. 6 Tabuk Housing Project. 7 Hail Housing Project. 8 Najran Housing Project. 9 Makkah Housing Project. 10 Al Leeth Housing Project.(under construction)
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11 South Mecca Housing Project.( approved)
Size of Number of Unit Cost Project Name Size of Unit Land Size of Unit Project Units (in SAR) 1st Complex 18,725 sqm 122 150,000 270 sqm 126 sqm 2nd Complex 52,928 sqm 200 216,000 260 sqm 180 sqm 3rd Complex 24,000 sqm 122 168,000 300 sqm 140 sqm 4th Complex 35,090 sqm 100 216,000 260 sqm 180 sqm Al-Gihma Housing N/A 100 N/A N/A N/A Project Tabuk Housing N/A 100 N/A N/A N/A Project. Hail Housing N/A 100 N/A N/A N/A Project. Najran Housing N/A 120 N/A N/A N/A Project. Mecca Housing N/A 180 N/A N/A N/A Project. Al-Leeth Housing 211,000 sqm 200 N/A 311 SQM N/A Project (Under construction) South Mecca N/A 100 N/A N/A N/A Housing Project (recently announced only. Construction hasn’t started yet)
Prince Al-Waleed Bin Talal Charity Housing Projects: 1 Al Qurayyat Project. Located in Al Jouf. 2 Skaka Project. Located in Al Jouf. 3 Al Qeerah Project. Located in Aseer. Size of Number of Unit Cost (in Size of Unit Project Name Size of Unit Project Units SAR) Land Al-Qurayyat 156,000 sqm 100 N/A 675 sqm 76 sqm Skaka 220,400 sqm 100 N/A 540 sqm 76 sqm Al-Qeerah 233,600 sqm 100 N/A 900 sqm 76 sqm
Charity Association Projects: 1 Ha’il Charity Housing Project. Located in Ha’il. 2 Bilmendasaah Charity Housing Project. Located in Al Medina Al Monawarah. 3 Al Nebah Village Charity Housing Project. Located in Al Medina Al Monawarah. 4 Al Tofail Village Project Located in Makah Al Mukarramah.
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Size of Number Unit Cost (in Size of Project Name Size of Unit Project of Units SAR) Unit Land Ha’il N/A 25 (a) 121,000 600 sqm (a) 145 sqm (b) 146,000 (b) 185 sqm Bilmendasaah N/A 500 35,000 233 sqm 108 sqm Al-Nebah 210,000 sqm 104 53,700 400 sqm 145 sqm Village Al-Tofail Village 16,377 sqm 106 66,000 120 sqm (a) 38 sqm (b) 62 sqm (c) 87 sqm Source: Housing Development “Hope for whom that have no housing”. Dr. Ali bin Salem Bahammam 2008
The following table depicts some of the eligibility criteria set by some of the major charity organizations:
The The Foundation of Foundation of Prince Salman Ha’il Charity Eligibility Criteria King Abdullah King Faisal Charity Housing Bin Abdul-Aziz Charity Projects Project Projects Projects
1 Applicants and their families X X X X to be bearing the Saudi nationality
2 Maximum family income X X X ranges between SAR 2,500 and 3,000
3 None of the beneficiaries X should have previously received any land grant
4 Beneficiaries do not possess X X X X or live in a “decent” house
5 Never obtained a loan from X X REDF
6 Family size to be not less X X than five members or two in some cases
7 Give priority to lower income X X segments, unemployed and large families
8 Residence in the city or X X X X region for a period not less than three years, and in some cases, request permanent residence
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9 Avoid focusing (or giving X special attention to) on widows, divorced women, and the disabled
10 None of the family members X should be guaranteeing an expatriate for business purposes
11 Absence of a family relative X who is capable of and obliged by Shariaa law, to spend on the family and provide them with housing
Source: Housing Development “Hope for whom that have no housing”. Dr. Ali bin Salem Bahammam 2008
6.10 Resale (secondary) Housing Market According to interview with Mr. Al Jaloul from Coldwell Banker (June 20 th , 2009), , the secondary housing market is still in its early stage and “Selling homes started to catch up just recently ”. The shift towards resale market is starting due to two main reasons: • Increasing prices of new homes • The relatively better quality of recent construction Interview with Mr. Salman Bin Saedan, Salman Bin Saedan Group, 21.06.2009
Why people sell their houses?
1 During the stock market boom (peaked in 2004 2005), people were usually selling their houses in order to get cash to get into the market with ridiculously high return on investment (ROI). Then after market crashed in 2006, many had to sell their homes due to the huge incurred losses. 2 Another important reason to sell one’s house is to expand (with a bigger family now, and bigger income, so one needs to expand). 3 One major drawback to this market is that in many instances, house restoration can prove to be too expensive than that of buying a new home (cost might get as high as ¾ of buying a new home). 4 The usual norm is that one buys a secondary home just for its land and not for the dwelling (a good piece of land in a demanded area, so one buys it, demolishes the home on it, and rebuilds). 5 Now resale market is picking up with expected better quality building. However, this is yet to be proven in the coming 3 5years Q& A Session with Coldwell Banker – Saudi Arabia (Sat. June 20th, 2009)
The same findings were confirmed by our interview with Dar Al Arkan: there is no secondary market. It is just starting now. This is due to the following:
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1 When homes depreciate, as a result of poor construction quality, lack of product standards and lack of urban planning, amongst others (which is the case in KSA), there is no secondary market 2 Due to the deprecation of homes, the affordability of selling one’s home to upgrade proves to be costly on average Saudis (even if eligible to get a mortgage loan).
6.11 Rental Housing Market Currently, Saudi Arabia is facing a rising unemployment problem, in common with global trends. However, perhaps unique in the international market, it is still seeing rent levels rising despite the global financial crunch, though at a slower pace.
This might be partially due to the sizeable financial and legal barriers to home ownership, which the government seems to be slowly addressing. With home ownership currently estimated at only 30% of the population, there is huge potential for growth in mortgage lending and also construction.
In contrast to many other countries around the world, there is significant potential for Saudi property market to develop at this stage and in the years to come. Still, at present housing finance is difficult to obtain and the vast majority of Saudis rent. Economist Intelligence Unit, Views Wire (June 3rd, 2009) Average Cost of Rent/sqm: Type of Dwelling Riyadh Jeddah Dammam/Khobar SAR 15,000 SAR 20,000 SAR 15,000 Apartment 30,000/annum 45,000/annum 35,000/annum
Villa SAR 60,000 SAR 75,000 SAR 60,000 120,000/annum 150,000/annum 130,000/annum
Worth to note that rent is increasing and that rent size is approximately double the ownership market; roughly estimated to be at 60+% • Interview with Mr. Salman Bin Saedan, Salman Bin Saedan Group, 21.06.2009
Average ratio of house rent to ownership is 70 75% (rent) to 20 25% (ownership) Q& A Session with Coldwell Banker – Saudi Arabia (Sat. June 20 th , 2009)
6.12 Role of Realtors/Brokers
Real estate agents in Saudi Arabia consist mainly of thousands of “boutique” shops and few professional agencies. The boutique shops owners tend to know the business by instinct experience. Pricing is a matter of personal judgment and negotiation. Most of those bureaus do not have professional standards to work by. Still, if they are licensed by the Ministry of Commerce and Industry as real estate agents, they have the right to be brokers and appraisers. The general norm is that the business tends to be run by an individual and soon evolves to become a family business.
In reality, we did not come across what would commonly be called a realtor as per the common definitions in the U.S and Canada. It is not known of any association yet in the kingdom that oversees, license, and provides a code of ethics in the kingdom for realtors similarly to the U.S. and other countries. However, some realtors who are members of associations abroad might be working within the kingdom. That is being carried out on individual basis without signs of a coordinated effort yet.
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On the other hand, real estate agents have mushroomed over the years across the kingdom. Wherever one goes in the main cities, one finds few real estate agent bureaus established next to each other, dividing their interest per neighborhood/block. Most of the real estate agents do not work out of the scope of their own neighborhood or zone. Many of those offices are run as “boutiques”, and most owners have either their “day job” and open after 4pm (after finishing from their day job), or have some representative to run the place during the day, and refer the business to owner in the late afternoon. Most of these agencies are family owned businesses.
The promising news is that – again on regional basis and not at nation wide level – some initiatives have been made and started with the effort to organize those “boutiques”. However, the law up to today’s date only acknowledges the real estate agents (those who got the license to open a real estate office from the Ministry of Commerce in their commercial registration) to issue property appraisals/valuations. Such offices are unprofessional boutiques and this side of the real estate business must be regularized. Professional appraisal companies are not always recognized. Q& A Session with Coldwell Banker – Saudi Arabia
6.13 Role of Appraisers
Appraiser's role
–Any real estate deal requires a neutral expert's estimation of the home's fair market value. The appraiser considers many factors including, condition, size, location, and amenities of the property being appraised. Part of the process is to you’re the appraised property to the prices of comparable homes that have been sold in the area. The appraisal process being undergone in the kingdom by professional appraisal companies/valuators takes the following factors into consideration in pricing an estate:
1. The overall price of the area/neighborhood 2. The nature of the neighborhood, nature of the land there 3. Location of the area (towards the North, South of the city…) 4. Entrance and exit from and into the area 5. The land/property being appraised: the façade, depth, existent on a main road(s), intersection of two streets… 6. Closeness to: school, mosque, park, utilities, hospital,…
6.14 Summary of Challenges & Gaps
The appraisal market is still underdeveloped. From a regulation perspective, any real boutique/shop that opened which is registered in the commercial registration with the Chamber of Commerce and Industry as a real estate agent/office, has the right to issue appraisals. In fact, due to such regulation, courts would usually accept such appraisals versus the professional local/international professional appraisal organizations.
The good news is that as a remedial action to the situation – in a recent article at Al Eqtessadiya newspaper in KSA dated 23/06/2009, 450 new appraisers (primarily consisting of university professors, engineers, entrepreneurs and teachers) took an oath to their new profession in Jeddah as the first professional individual appraisers in the kingdom. This came as a new effort to professionalize the market and business. Those new 450 appraisers underwent – according to the newspaper – seven training sessions over a period of 35 weeks as part of a new program in excellence in real estate appraisal set by the Training Centre for Advanced Studies.
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According to Mr. Mazen Batergi, Vice President of Jeddah Chamber of Commerce (in same above mentioned article), the real estate investments in the kingdom have exceeded SAR 2 trillion, stating that the major issues facing the real estate market (as a whole) the major disparities in real estate pricing, in the absence of proper specific standards to measure the real price of the estate.
Still this effort is at the Jeddah level, in the absence of a nation wide level of effort to professionalize the appraising industry. Some of the lessons learned on housing demand & supply:
1. Out of the official records of 200,000 units in need (demand), assume 70% are social housing (140,000 units) are already out of the developers’ market. This would leave around 60,000 units to be built by developers. There is still a shortage in supply as it is believed that less than 50% of the required units are being built per annum (though the above mentioned 70% seems high, this means that current developers cannot cope with an underestimated demand of non social housing units). 2. In a 2004 study conducted by Dar Al Arkan, around 98% of homes have been developed by individuals (not professional developers/contractors). That is mainly due to the REDF program. 3. Dar Al Arkan are one of the biggest developers in the country (with an estimated 2% market share in the addressable market of middle segment), still their capacity is at around 1,500 2,000 units/annum. Middle developers and then you move to the small individual developers that have 98% market share.
4. During last year (2008), when housing prices went down globally, prices remained flat and in some instances slightly increased. Small freelancers (capacity of 20 100 units/year) had to bring the prices down as their model is “build and sell”. Since they rarely finance, they are in need of cash flow and velocity of disbursing the units (offload and bring in the cash). Interview with Dar Al Arkan 5. There is a general acceptance issue to build social housing a. Political (to raise & acknowledge the issue in public, & show figures and facts). b. Cultural (many Saudi citizens might not accept to live in such projects, in order not be labelled as such. Nonetheless, this mentality seems to slowly change. c. One solution would be to build social housing, and give the options to expats to fill them. This would create a void in where the low-middle income expats are currently living, bringing the prices down, and thus help lower income segments of the Saudi population to discretely move to those freed-up units. Interview with Dar Al Arkan
6. As part of the lessons learned, it is advisable that the GHA be proactive in the following: a. Ask developers to build homes for the underprivileged which would " أرض ا و " b. Help developers by providing them with developed land considerably reduce the cost on the end user. Example: the current GHA budget is around SAR 10bn to solve the housing issue, while if current studies are correct, the kingdom needs around 200,000 units across the kingdom, 40% of which goes to Riyadh alone (approx. 80,000 units). At the average cost of 400,000/unit, this alone would be 3.2 times more than the entire SAR 10bn budget of GHA). Interview with Mr. Salman Bin Seadan Group
6.15 Conclusion It is clear that the supply is not currently sufficient to cover or meet the demand. The gap might not be decreasing due to lack of proper planning, available accurate data, proper urban planning, insufficient
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developers’ capacity, and/or lack of enforced building code to ensure construction quality and standardization. Another challenge is how to finance the housing projects. Banks are still reluctant to fund contractors/developers despite the government’s fiscal policies to boost credit. This however is slowly changing with recent scattered news of considerable funding housing related deals (last of which is Riyad Bank’s multi million dollars deal to finance Dar Al Tamleek, a recently established real estate finance company). The government is currently playing an instrumental role in both housing supply, and encouraging credit offerings within the public sector. Still more efforts and coordination are expected to help bridge the supply gap.
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7 HOUSING AFFORDABILITY ANALYSIS This chapter will try to show the affordable housing structures according to various sections of the population. In order to do so, we tried to gather information and conduct simple analysis of the population segments (income distribution by quintile) to check which segment of the population can afford to get which type of dwelling, and against which percentage of down payment and for which interest/profit rates…
A study conducted in 2006 revealed the following average range of prices across the kingdom per type of dwelling:
Types of Housing Units and Prices Type Sqm Number of Rooms Average Prices Apartment 150 2 200,000 – 400,000 Apartment 250 3 350,000 – 550,000 Villa 250 3 750,000 – 950,000 Villa 350 4 850,000 – 1,500,000
Housing Affordability :
A significant section of the younger generation of KSA, in the age group of 20 35, is currently deprived of real estate ownership and they live along with the elder generation, which also leads to the choice of villas as preferred housing units. They have to face a rental cost at 45% of their current income levels or a monthly mortgage at 41%, should they decide to move out. The higher equity levels of 50% on an average, which is the result of lower mortgage penetration also magnifies the lack of affordability. (Kuwait Financial Centre “Markaz” Real Estate Research – June 2009) One interesting finding in the above study is that monthly mortgage payments are lower than rental cost.
Given that the average annual household income in KSA is approximately SAR170, 000 ($45,400) the estimated loan payment to income ratio for the purchase of a 225 sqm apartment by a household would be 23%, which is very reasonable. The table below summarizes NCBC analysis of the affordability of housing to Saudi households. 54: Debt burden –
KSA home sizes tend to be large, as a result of a large household size. For lower income families (annual household income < SAR70, 000) to purchase a 225 sqm flat, debt burden would reach 55% on annual income. The challenge for the Government is to satisfy the demand for low income housing, given the typically large households (and preference for larger housing units) prevalent in the Kingdom.
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Though according to many observers annual household income of SAR 170,000 is relatively on the higher end of the income distribution, however, it might be applicable due to the large income disparities among the Saudi population. For the sake of the above exercise, the figures would serve the purpose. , Above table shows that for lower income segments of the population (less than SAR 70,000/annum), the only affordable unit would be of a size of 75sqm which would not typically be considered as adequate housing for families with a large household size. Analysis also showed that income segment of SAR 120,000/annum (which is more shifted towards average “middle” household income) can afford to get a 150sqm housing unit. Similarly, it took the SAR 170,000/annum income segment to be eligible to acquire a housing unit sized 225sqm and above (up to 300sqm).This means in other words that large segments of the population would be deprived or have a missing opportunity to own their own home without government intervention (be it as a guarantor, financial supporter, regulator, or facilitator).
NCB Capital estimated the demand to reach 190,000 housing units per annum. By 2012, if the mortgage market will drive purchases of just a quarter of residential units (assumingly so), the total mortgage market could be as large as SAR86.5bn ($23.1bn). This represents a growth of 450% between 2008 12 with mortgage to GDP estimated to rise to 4.4% in 2012 (from under 1% at present at current stage). NCB Capital – Real Estate Sector, kingdom under construction, June 2008
In another affordability analysis with a different approach shows that on average, 80% of the Saudi population with the help of a bank loan, can afford to pay at least SAR 753,570 (which includes down payment of 30% against LTV70%) enabling this segment to be able to purchase from available residential units Housing Affordability
Affordability of Proposed Housing Type per Income Range
Monthly Funds Available Median Monthly % of People in Category (Average Salary per Month) Instalment Value to Purchase a Income (SAR) Category (SAR) Residential Unit* Below SAR 1,875 SAR 1,000 SAR 350 5% SAR 365,010
SAR 1,878 SAR 3,750 SAR 2,814 SAR 985 15% SAR 517,410 SAR 3,751 SAR 7,500 SAR 5,626 SAR 1,969 32% SAR 753,570 SAR 7,501 SAR 11,250 SAR 9,376 SAR 3,282 20% SAR 1,068,690 SAR 11,251 SAR 15,000 SAR 13,126 SAR 4,594 16% SAR 1,383,570 Above SAR 15,001 SAR 22,000 SAR 7,700 12% SAR 2,129,010
Assumptions
Monthly Loan Payment As a % of Salary 35% Loan Duration (Years) 20 Average Average Down Payment SAR 281,010 Down 30% Payment * Including down payment
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Deloitte Analysis
The main shortfall of the above analysis is that it assumes an average down payment of SAR 281,000, amount of which might be looked at as inaccessible to the large section of the population (some of the middle class inclusive). Said analysis would be feasible should the government ease up the prices (subsidizes) or assist through REDF (or the like) to the pay for the underprivileged the down payment for example
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7.1 Affordability Analysis in Effective Demand Given the pricing disparities and lack of transparency with regards to the salaries in the private sector, in addition to the difficulty of obtaining household income (Saudi Arabia does not have taxation system per say, whereby you declare your total income as an individual); it is difficult to properly assess the affordability analysis in effective demand. One method to estimate it would be to average out from subject matter experts the ranges and price difference to decrease as much as possible the discrepancies.
Given the above, the following analysis took into consideration average income from various studies; assuming a payment for the mortgage not exceeding 33% on the income; and a flat interest rate of 5% (benchmark) to reach to the following conclusions:
Housing Affordability with a 10% Down Payment (SAR)
Monthly Installment at 5% Interest (profit) Monthly Income Rate Required Housing unit 10 % Down Loan Price* Payment
10 Years 15 Years 20 Years (Over 20 Years)
200,000 20,000 180,000 2,250 1,750 1,500 4,545
450,000 45,000 405,000 5,063 3,938 3,375 10,227
750,000 75,000 675,000 8,438 6,563 5,625 17,045
950,000 95,000 855,000 10,688 8,313 7,125 21,591
*Market price for houses currently available
Housing Affordability with a 20% Down Payment (SAR)
Monthly Installment at 5% Interest (profit) Rate Monthly Income Housing unit 20 % Down Required Loan Price* Payment 10 Years 15 Years 20 Years (Over 20 Years)
200,000 40,000 160,000 2,000 1,556 1,333 4,040
450,000 90,000 360,000 4,500 3,500 3,000 9,091
750,000 150,000 600,000 7,500 5,833 5,000 15,152
950,000 190,000 760,000 9,500 7,389 6,333 19,192
Housing Affordability with a 30% Down Payment (SAR)
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Monthly Installment at 5% Interest (profit) Monthly Income Housing unit 30 % Down Rate Required Loan Price* Payment 10 Years 15 Years 20 Years (Over 20 Years)
200,000 60,000 140,000 1,750 1,361 1,167 3,535
450,000 135,000 315,000 3,938 3,063 2,625 7,955
750,000 225,000 525,000 6,563 5,104 4,375 13,258
950,000 285,000 665,000 8,313 6,465 5,542 16,793
The sensitivity analysis shows that the monthly income required for 10% down payment scenario versus the 20% down payment scenario is not statistically significant. Whereas if we look at the difference in monthly income required between the 10% down payment scenario and the 30% down payment scenario, we realize that in the latter’s case, houses become much more affordable, with minimum range of small apartments would be accessible to the low medium and to some extent the lower income segments of the Saudi population.
Since an advance payment of 30% is a burden on the targeted segments, it would be worth checking whether the government is willing to subsidize the 30% down payment, or at least guarantee it to the private sector, enabling a greater portion of the population to have access to having their own home at an affordable rate while keeping a minimum standard of quality of dwelling.
Saudi workforce income breakdown and affordability
Assuming a 20% down payment, a tenure of 20 years and a 5% interest rate (flat); it is assumed that individuals can afford to pay up to the maximum of 45% of their salary as mortgage monthly installment (though has to be cleared out with SAMA, whether the latter approves going beyond 33% of income).
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This chart presents a breakdown of salaries of the Saudi workforce, and the maximum price of a residential unit individuals within each salary range can afford to finance through mortgage (assuming all categories are under the 6 main quintiles wihtout taking into consideration the affluent segment).
It was found that almost 48% of the Saudi work force (2 million individuals approximately) can afford buying housing units with value above SR 450,000
At current prices, villas would be affordable for those earning above 20,000 per month, an estimated 8% of the population
In the next slide we ran various scenarios to examine how changing the mortgage assumptions would change the affordability %.
7.2 Summary of Challenges & Gaps One may check several options whereby affordable housing is feasible to the middle income segments of the population at all its levels (low to high) with the various types of dwelling (including a villa).
As a matter of fact, though it has been announced that SAMA will impose the 33% rule of income to pay for housing financed products, until today, many banks are accepting to finance against 40% of the income. The reasoning behind it is that if one is living in his own home, one needs not pay the average 10 20% of his income for housing rent. Hence, applicants can add it to paying the loan. This would bring more people greater and easier access to the mortgages and better quality and bigger homes.
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On the other hand, regardless of the percentage of payment as part of one’s income, it is the low income segment that will be hurt assuming that the only really profitable method of payment is to pay 30% advance payment which is too high even in current days (LTV 70% is not very competitive in the global markets).
In addition, the 5% flat rate is a quite high figure (around 8 8.5% floating) which is too expensive. With the upcoming mortgage law, it is expected that the government would take initiatives to lower the rates as the risk on the financial institutions would be less.
In the final analysis, the income segment of below SAR 5,000/ would suffer either way from increased rental prices or high payments to buy a home for themselves, unless government intervenes not through providing cash alternatives to the citizens to build their home, which is again building a vicious cycle of chaotic building with low quality and poor living standards, but actual partnership with the private sector to support this class and guaranteeing them.
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8 HOUSING FINANCE SECTOR
It is clear from the previous chapter that real estate finance constitutes a crucial part for the development of the housing section.
Until 2006, corporate lending was virtually non existent (only retail), which made restrictions on the development of the sector. Nowadays, most banks would consider retail lending as a safer option than corporate lending (less risky per default); hence they are more prone to offer retail loans. Working capital on the other hand, caused and still causes constrains: if end users will not pay until they receive their unit, and banks will not finance you. This caused a problem to the small individual entrepreneurs & small to medium developers. Interview with Dar Al Arkan
Due to the global crunch and as a by product to the above mentioned, residential real estate’s share in the total capital investment came down from its high 20%+ levels during early 2000s to 13% in 2008, driven mainly by shortages in ownership financing. This is corroborated by a 100 bps contraction in mortgage lending as a percentage of total credit during the past three years. (Kuwait Financial Centre “Markaz” real estate research – June 2009)
Housing finance analysis shows that in 2004, 52.8% of funding for residential buildings came from family savings, 39.9% of funding came from the REDF, funding from the private sector was a low 5.9% other ways of funding had a 0.5%. Source: King Abdul-Aziz City of Science & Technology. Study # AD 20-19 final Report 1/9/1425H
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8.1 Banking industry indicators
The banking sector is divided into three categories: Government owned/public banks, commercial banks, and investment banks.
The following table gives a high level snapshot of Saudi banks:
Banking sector statistics for the past 5 years. Statistic 2004 2005 2006 2007 2008 Total Number of Banks 16* local 16 local + 4 16 local + 5 16 local + 5 16** local + 6 + 4 foreign foreign foreign foreign foreign Number of Public Sector Banks 5 5 5 5 5 Number of Private Sector Banks 11 11 11 11 11 Total Banks Consumer Loans 73,305 115,306 180,856 180,710 182588 (SAR mn.) Total Banks Real Estate Loans 5,192 8,790 13,656 13,690 15,631 (SAR mn.) Net Foreign Assets of Domestic 47.1 26.4 70.6 42.5 Banks Total Banking Sector Assets (SAR 47,051 26,390 70,597 42,499 2,628 mn.) Average Deposit Rates 1.73 3.75 5.02 4.79 * Al Bilad Bank was established in 2004. **Al Inma Bank was established in 2009 There are some 82 investment banks and financial investment companies that were licensed by the Capital Market Authority (from 2005 until now) to operate within the Kingdom and that have resumed work. According to SAMA classification in its 44th Annual report (2008), the specialized credit institutions are: Saudi Agricultural Bank, Saudi Credit and Saving Bank (SCSB), Public Investment Fund (PIF), Saudi Industrial Development Fund (SIDF), Real Estate Development Fund (REDF). Their total net lending increased from (SAR 10,856mn.) in 2004 to a SAR 9,454mn
Historical data revealed that bank lending to real estate has very low contribution to total banking lending (peaked in 2005 at around 3%); whereas construction sector had a bigger share of 8% in 2005. Both sectors are however facing some difficulties in obtaining lending since Q1, 2009. That is mainly due to the global crunch.
Still, as the following table shows, it is expected that mortgage market (part of real estate lending) would pick up to almost 4.5% of GDP by 2012.
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Bank credit to real estate, though starting from a small base, grew 780% from 1998 to 2007. By 2007, banks’ exposures to real estate were SAR15.6bn ($4.2bn). 57: Immense potential in the mortgage market
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The industry is witnessing the emergence of licensed mortgage providers, with local developers, banks and pure mortgage players entering the market. • Dar Al Arkan Real Estate Development Company launched a SAR2bn mortgage finance company (Saudi Home Loans Company) as a joint venture with IFC, Kingdom Installment Company, and Arab National Bank. The company’s aim is to finance low and mainly middle income housing, thus serving the huge young population base in the Kingdom • A housing finance company Amlak International was registered in June 2007. Shareholders include Saudi Investment Bank (29%) and UAE based Amlak Finance (22.5%). The company is seeking to build a base in the Kingdom’s nascent mortgage finance industry • The other major UAE mortgage finance player Tamweel is also expanding into Saudi, and has launched a JV with Al Oula Real Estate; however this has been put temporary on hold. • The Saudi National Commercial Bank, SABB (formerly Saudi British Bank) and Riyadh Bank currently also offer housing finance. Al Rajhi Bank also issues Shariah compliant mortgages through Murabaha agreements NCP capital – real estate sector, kingdom under construction, June 2008
Despite all the above efforts, bank credit extended for the purchase of homes is minimal in Saudi Arabia. The following depicts the relatively small share real estate finance has in overall bank credit (though increasing):
Breakdown of Bank Consumer Credit (SAR billion), 2003-2007
13.7 13.7 15.6 Real estate finance 29.0 34.3 37.6 Cars & Equipment
8.8 27.9 Other 5.2 138.2 132.8 129.4 28.9 78.6 39.2
2003 2004 2005 2006 2007
Real estate finance extended by banks in Saudi Arabia for consumers to purchase homes is minimal compared to other categories of consumer credit. Credit for cars and equipment and for the “other” category were significantly higher
One of the main reasons for this is that banks have been reluctant to enter into the mortgage market in the absence of clear legislation regulating mortgage deals and defining the rules around collateral and securitization. However, this should change with the adoption of the new mortgage laws In 2007, banks extended SAR 15.6 billion in finance to end users for the purchase of homes, development finance, and land purchases
Mortgage penetration is low by other measures as well. As a percentage of GDP, it was equivalent to 1.1% in 2007, while as a percentage of total bank credit extended, it was 2.6%
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Saudi Banks have avoided the mortgage sector, but there is a strong potential to expand this segment in coming years:
Saudi – Banks Consumer Loans and Real Estate Loans as a % of GDP, 2001-2006
15.7% 14.4% 12.6% Consumer Loans 9.4% 7.9% 5.9%
1.2% 0.5% 0.6% 0.6% 0.9% 1.0% Mortgage Loans
2001 2002 2003 2004 2005 2006
Saudi Arabia has witnessed a boom in consumer lending since 2001, including credit cards, car loans and personal loans…with loans growing the equivalent of 5.9 % of GDP in 2001 to 14.4% of GDP in 2006.
However in terms of mortgage lending, the portfolios of Saudi banks have stagnated as they have avoided this sector, remaining between 0.5% to 1% of GDP during the period. As a result mortgage lending did not develop along with the other expanding sectors of consumer lending.
The opening of the real estate market can help Saudi banks to expand their consumer lending portfolios:
Saudi – Banks Consumer Loans and Real Estate Loans per capita, 2001-2006
8,014 7,935 Consumer Loans
5,179 3,356 2,529 1,900 230 384 591 578 Mortgage Loans 154 204
2001 2002 2003 2004 2005 2006
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In per capita terms, a similar picture is seen with consumer loans growing from SAR 1,900 to SAR 7,935 per capita from 2001 to 2006. However, mortgage lending as a proportion of consumer loans has risen only moderately from SAR 154 to SAR 578 during the period. With the required regulations and risk framework in place, Saudi banks and finance companies will be able to significantly expand their mortgage lending portfolios.
Bank credit to the construction sector is forecast to reach SAR 87 bn in 2013
Bank credit to construction and home finance as a percentage of total deposits1, 2003-2007
Home Finance 3.0% 3.6% 2.9% 1.8% 2.5% Construction 8.3% 9.0% 7.8% 6.6% 8.1%
2003 2004 2005 2006 2007
Bank credit to construction as a percentage of total bank deposits is relatively stable in Saudi Arabia, averaging about 7 8% of deposits between 2003 and 2007.
On this basis, it is possible to forecast the amount of bank credit to construction for the period 2008 2013.
It is estimated that bank credit to construction will total SAR 54.4 billion in 2008 and will reach SAR87.6 billion in 2013.
Projected credit to construction in Saudi Arabia (SAR billion), 2008-2013
87.6 79.6 72.4 65.8 59.8 54.4
2008 2009 2010 2011 2012 2013
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8.2 Estimated Mortgage Size in Saudi Arabia 1. The number of units to be purchased by private buyers in Saudi is projected between 93,000 to 115,000 per year from 2008 2013. The required number of new residential units in Saudi Arabia until 2013, based on demographic trends and average household size, were estimated by Deloitte at 169,000 in 2008, peaking at 209,000 in 2013. These estimates are in line with the forecasts of the Saudi ministry of economy, which planned for 200,000 new residential units to be built each year for 2005 2009 to meet the housing needs of the Saudi population. These figures are also in line with independent estimates by Dar Al Arkan and others covering the period up to 2012 2013.
2. Based on the current ownership structures in the Saudi market, it can be estimated that some 55% of these residential units will be purchased by private buyers* (individuals and corporates). The remaining 45% are assumed to be residential units provided through charity and social / corporate programs, REDF financed homes, as well as units released on the market solely for rent. It is estimated that private buyers will purchase around 93,000 new units in 2008. This will peak at approximately 115,000 new units in 2013 *For the purposes of this study, REDF clients are excluded from the category of “private buyers” as the program caters to a different market segment, (mostly lower to lower middle income), not the same clients to be targeted by new home finance companies or commercial banks. Source: Deloitte Estimates; Dar Al Arkan; Ministry of Economy
3. The number of units to be purchased through mortgage finance in Saudi Arabia is projected to reach some 57,000 in 2013. As the new mortgage regulations have not been adopted, it is assumed that the percentage of units purchased through mortgage in 2008 (at 10%) was muted. The market is expected to develop as of 2010, following the adoption of the expected mortgage regulations (hopefully by end of 2009), with a 30% adoption rate. As end users awareness increases of the new regulations and financing means, the adoption rate is gradually expected to increase to reach 50% in 2013. It is expected in Saudi Arabia that end users will take time to adapt to the new financing mechanisms available, as well as to be drawn to the new type of apartments and community based developments.
4. It is expected that the value of new mortgages to be extended in Saudi over the five coming years to reach SAR 174 billion. In these projections, average 2008 prices for villas, apartments (2 and 3 bedroom), and traditional houses of SAR 750,000 were taken into account from three major cities, Riyadh, Jeddah and Dammam. These prices were appreciated by annual rate of 9% over the period to take into account price increases. It was assumed that the average loan to value of 80%. It is expected that new mortgages extended will reach SAR 31.3 bn in 2011 and peak at SAR 53.1 bn in 2013.
Source: Deloitte Analysis
8.3 Potential Bottlenecks for the Development of Housing Finance
There are few bottle necks in the housing supply chain, including refrain of financial institutions from extending credit and fear of repercussions of the global crunch. In addition, hindrances to an efficient supply of housing exist, and are related to the following three issues: • The provision of infrastructure and utilities to newly developed areas; • Land use and zoning regulations; • The structure of the real estate sector. • Property registration
These issues are treated in turn as under 1. Provision of infrastructure and utilities
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• “More than 1.5 million plots of land have been allocated up to now. Less than 5% of the plots have been used directly by the beneficiaries to build houses. Rather, parcels of ‘White Land land not reached by services and utilities’ are often sold to investors who collect them in anticipation of capital gains when infrastructure finally reaches them.” 2. Land use and zoning regulations • The coordination of infrastructure and utilities, as well as the spatial prioritization of infrastructure and utilities provision, seem to constitute a difficulty, in spite of the existence of a dedicated department in the Ministry of Municipal and Rural Affairs (MOMRA) in charge of the coordination of the delivery of infrastructure and services to newly developed areas. 3. Structure of the real estate sector There seems to be two main potential constraints on urban development • There is a minimum lot size of 200sqm. This limit is fixed by national standards, not local regulations. • Local master plan may impose low floor area ratios (FAR) that encourage urban sprawl. E.g. until recently the height of buildings in Riyadh was limited to 2 floors in most of the city. 4. Property registration • The cadastre system started in 1989. A new system was approved by the Ministry of Justice three years ago (since 2006) Cadastre law. Completing the coverage of this new cadastre is expected to take another ten years. The World Bank, Kingdom of Saudi Arabia – Assessment of the housing Finance Sector
8.4 Saudi Mortgage Market The Saudi mortgage market is relatively unstructured. Under the current regulations, the only loans extended are those for completed / existing units, as no financer can take the risk of funding off plan properties. REDF loans are mainly for construction with loans ranging from SAR 200,000 300,000 (just recently increased to SAR 500,000). With prices for completed properties significantly higher, consumers must turn to banks or installment/finance companies.
Leasing / REDF Banks Installment Personal Loans companies
13.4% 5.9% 10.6%
70%
10.9 bn 71.2 bn 13.7 bn 6 bn (est.) (est.)
613,000 28,000 (est.) 13,000 (est.) 22,000 (est.)
SR 101.8 billion 676,000 units outstanding finance
Saudi Arabia’s main home finance agency. REDF has been unable to keep up with demand.
Banks have begun promoting home finance for the purchase of existing units, but are weary of entering the sector before new mortgage laws are approved.
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Finance/Installment companies have added lands and homes to their traditional product portfolio of vehicles, furniture and appliances.
Banks offer personal loans to customers usually on condition of salary transfer to the bank. A portion of these loans are used by Saudis for home improvement or construction (or even assist to home purchase), though there is no clear data on these trends.
Demand for mortgage finance is expected to reach SAR 30 bn:
Demand for mortgage finance in Saudi Arabia (SAR billion), 2008-2013
In 2008, it is expected that mortgage finance extended will be muted, as home finance legislation has not been formalized. New mortgages in 2008 are therefore estimated at SAR 3.7 bn.
In subsequent years, by assuming a loan to value ratio of 65%, demand for mortgage finance is estimated to be around SAR 19 billion iin 2009; and above SAR 30 bn by 2012, and SAR 33.8 bn by 2013.
Demand for mortgage finance in Saudi Arabia by type of unit (SAR billion), 2008 & 2013
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This is the market to be targeted by commercial banks and mortgage finance companies.
It is expected that the highest demand will be for apartments, annexes and apartment like (flats in compounds) units.
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8.5 Funding Sources Options
The most current common funding options are usually deposits (for banks), raising capital, bank loans, and recently increasingly popular and government driven, Sukuk (securitization)
Funding resources option – financing through banks
One of the major banking facilities in Saudi Arabia is through the International Finance Corporation (IFC) facility which is committed to expanding access to housing finance in Saudi Arabia.
IFC, a member of the World Bank Group, fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing private capital in local land international finance markets, and providing advisory and risk mitigation services to businesses and governments; IFC signed a memorandum of understanding with three of the country’s leading saving institutions the Public investment fund, the General Organization for Social Investment, and the Public Pension agency as first step to establishing a $400 million housing finance facility. The facility formed by IFC and local public agencies will provide long term funding to banks and housing finance institutions to help them provide affordable financing to lower and middle income people. IFC’s housing finance transaction s in the country include an investment of $27 million alongside three leading Saudi companies to launch the Saudi home loans. IFC also arranged for India’s Housing Development Finance Corporation to train Saudi Home Loans Company in credit risk management, operations, and management information system. IFC provided $25 million in credit enhancements for a mezzanine tranche issued by Kingdom installment Company, in the first residential mortgage backed securitization based on Islamic finance in the Gulf Cooperation Council countries. IFC also provided a long term Murabaha facility of $50 million to help Saudi British Bank expand its housing finance portfolio. So far, IFC has committed more than 500 million riyals ($130 million) in key sectors, including housing, insurance, and leasing. Source: IFC; Deloitte research and Analysis
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On Sukuk
Securitization is a structured finance process, which involves pooling and repackaging of cash flow producing financial assets into securities that are then sold to investors. All assets can be securitized as long as they are associated with an underlying cash flow. Securities issued at the outcome of this process are termed asset backed securities (ABS). Securitization often utilizes a special purpose vehicle (SPV), to access a larger pool of investors, as well as to diminish tax implications.
Securitizations allow investors to buy bonds that are directly tied to mortgages, auto loans or other income producing assets. The loans move off the balance sheets of banks, freeing them to lend more and drive growth in mortgage markets, which in turn helps demand for housing.
The Sukuk backed by Ijarah (Islamic leasing) contracts provided an alternative source of funding for mortgage companies as well as being a shariah compliant, fixed income investment product. This can be sold to GCC based investors, both individual and corporate, as well as international investors.
The Global Credit Crisis has slowed down moves towards developing the securitization market in the GCC; however it will increase in importance as financing companies start seeking new and convenient sources of funds.
The International Financial Corporation (financing arm of the World Bank), recently supported Saudi Arabia’s Kingdom Installment Company (KIC) to structure a US$18.3 million Sukuk security, backed by US$23.5 million in underlying asset receivables. IFC plans to support KIC in issuing some $300 million in real estate backed securities over the next 3 years, allocating some US$30 million to these securities.
It is difficult to estimate the size of the GCC/MENA securitization market, however industry leaders believe it runs into the billions of dollars
Source: Deloitte research and analysis
Issuing securitization or asset backed sukuk requires good credit rating, quality assets, and is accompanied with advisory cost. The US mortgage crisis might have its negative effect on the Saudi market and discourage Companies from issuing Sukuk and investors from investing in Sukuk.
Mortgage companies Sukuk issues in Saudi market:
1. Tajeer Company issued an Istithmar Sukuk on March 2008 with a value of $66.7 million (SAR 250 million) maturing in 5 years time and with a margin of SIBOR + 250 bps.
2. Kingdom Installment Company issued a mortgage backed security on July 2006 with a value of $18.3 million (SAR 67.5 million) maturing in 14 years and with a margin of 6.55%
In total, between 1996 2008, Sukuk in the Saudi market totaled US$6.6 billion (SAR 24,900 million).
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Saudi new issued Sukuk (SAR billion), 2006-2008
21
5 3
2006 2007 2008*
Mortgage issued Sukuk (SAR million), 2006-2008
250
68
Tajeer Company, 2006 Kingdom Installement Company, 2008 Source: Zawya Deloitte research and Analysis
8.6 Banking Sector & Financing Instruments for Housing Purchase & Rental Banks Specialized Credit Institution Installment / Leasing Companies Saudi British Bank (SABB) Real Estate Development Fund Ta’jeer Company Riyadh Bank Charity Osoulmodern Arab National Bank Saudi Home Loans* SAMBA Kirnaf Installment Company National Commercial Bank Ta’jeer Company Al Rajhi Bank Amlak Banque Saudi Fransi Mullak Arabia Al Jazira Bank National Installment Company** Al Bilad Bank The Saudi Investment Bank Saudi Hollandi Bank *Saudi Home Loans is providing mortgage solutions also to expatriates. Source: SAMA; IMF Financial System Stability Assessment, 2006
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8.7 Financial Institutions Sector & Financing Instruments for Housing Purchase and Rental
Structure of Non Bank Lenders Instalment / Leasing Companies overview Name Date Type Ownership Paid up Products Established Capital Extended Arab National Bank + Private Joint Kingdom Installment Mortgage finance 2007 Stock Company (40%), Dar Al SAR 2 bn (Shariah Company Arkan (15%), International compliant). Saudi Home Loans Finance Corporation (5%) Saudi Investment Bank (29%), Amlak Finance Private Joint Mortgage finance (22.5%), Al Baraka 2007 Stock SAR 1 bn (Shariah Investment & Tourism (10%), Company compliant). Aseer Trading & Tourism (10%), other. Masraf Al Rayan (20%), Private Joint Abdullah Al Romaizan, SAR 1.2 Vehicles, good, 2007 Stock Abdelmohsen Zakary, Ahmad bn and mortgages. Company Abdullatif, Ali Al Jedaii. Private Joint Founded by Al Akaria along SAR 1.0 Islamic mortgage June 2008 Stock with other 13 prominent bn finance Company institutions Finance for vehicles, Private Baghlaf Al Zafer Holding SAR 200 commercial and 2003 Limited Group mn residential real Liability estate, furniture, Osoulmodern appliances Vehicles, Private Joint mortgages, Abdullah Al Sultan, Youssef SAR 100 1989 Stock furniture, home Al Hamdan, AMA Group mn Company appliances and other Financing and leasing for cars, machines and real Saleh Jamil Malaika (28%), Private estate. Provides Rusd Group (23%), Al Baraka SAR 200 1998 Limited loans to Investment and Development mn Liability individuals with (21%) and other undeveloped land, wishing to execute a project
Private Joint SAR 250 Mortgage & 1990 Stock 100% Saudi Partners mn Vehicles finance Company Commercial Installment Group of Companies Private Joint Part of Abdullah Ibrahim Al SAR 25 Vehicles & 1990 Stock Khorayef Sons Group of mn mortgage finance Company Companies
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In general, Saudi finance companies are small boutique establishments, not well-positioned to cover the Saudi market
Of the finance companies covered in this study, only the National Installment Company benefited from good geographical coverage with 10 branches. The majority were small boutique firms, unspecialized and limited to a few branches. However, in 2007, there was a significant change with 3 new professional home finance companies – Saudi Home Loans, Tamweel, and Amlak – launching operations with a specialization in home finance.
Name Branches Name Branches
10 branches in central, 2 in Jeddah western and southern regions
1 branch in Riyadh. 3 branches: Riyadh, Representatives in Mecca & Jeddah, Dammam Dammam
1 in Riyadh. 1 in Riyadh Planned Jeddah, Dammam and Khobar
• Many of Saudi finance companies are boutique companies, with few branches, and offering finance for a variety of consumer purposes • In general, banks are better positioned than the finance companies to reach customers, as most have several dozen and sometimes over 100 branches around the country
Finance companies are often aligned with major developers or banks • Links with developers grant the finance company a preferred status to grant finance to end users for that development project. • Links with banks grant the finance company access to a large client base and an important source of funds
Company Backed By
Advantages of Being Backed:
Financial support: Finance companies that are backed by banks have access to an important source of funds
Marketing synergies:
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Developer Alligned with • National Commercial Bank • Arab National Bank • SABB • The National Commercial Bank • Samba Financial Group • The National Commercial Bank • SABB • Samba Financial Group • National Commercial Bank • Riyad Bank • Ahli Bank • National Commercial Bank • Riyad Bank
• Arab National Bank • Samba Financial Group • National Commercial Bank
• Riyad Bank
• HSBC Saudi Arabia • The National Commercial Bank • National Commercial Bank • Riyad Bank Companies that are backed by others entitites can use their marketing and advertising efforts to market their own services
Client referrals: Developers with their own financing arms can easily refer their clients to their sister company, which often results in streamlined procedures and preferential terms and interest rates
Saudi Home Loans is a good business case aligned with a major developer in the kingdom:
The model adopted by Saudi Home Loans – alignment with a major real estate developer – as well as a major bank, makes the firm well positioned to serve the home finance market in Saudi Arabia. This is particularly the case if SHL becomes the preferred financer for Dar Al Arkan projects. Alignment with a major developer was a key factor among the most successful home finance companies and banks in the UAE.
Saudi Home Loans Company
Description Type: Private Joint Stock Company Established: December 2007 Target Market: Middle to Lower Income segment of population Products: Shariah compliant finance instruments
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Training and Development: Saudi Home Loans management team received training in credit risk management, operations and management information systems from HDFC, a leading Indian housing finance firm Strengths Alignment with a major real estate developer: means SHL has potential to become preferred financer of Dar Al Arkan projects Alignment with a major bank : gives SHL a cheaper source of funds and financial management; e.g. alignment with Arab National Bank Specialized in Shariah-compliant home finance, unlike many of the traditional installment / leasing companies in Saudi Backing from IFC: Alliance with IFC is an innovative source of finance, training and development SHL Ownership matrix
Owned By %
Arab National Bank 40%
Kingdom Installment Company 40%
Dar Al Arkan 15%
International Finance Corporation (The World Bank Group) 5%
Total Paid Up Capital SAR 2 bn
8.8 Capital market
Background on Capital Market Developments The Saudi capital market is a relatively recent market which was regulated through the establishment of the Capital Market Authority (CMA) in 2003.
Despite its young presence, CMA managed to regulate the capital markets in Saudi Arabia. However, Sukuk (financial instrument) and bonds has not been totally regulated until recently.
The establishment of a market for trading financial instruments and Bonds came as a result of an ongoing pursuit of the CMA to further develop the capital market in Saudi Arabia. CMA board approved on 6/6/2009 the creation of a market for trading financial instruments and Bonds in the Kingdom of Saudi Arabia. This market will provide different services in this area such as the inclusion of the instruments, bond orders, send orders, trade execution to settlement, the dissemination of price data, conservation and registration; As a very recent event which was welcomed by many companies that wished to securitize and refinance there is a great potential for this market, with positive impact on the real estate market. Many real estate finance companies and developers are looking forward to securitize and issue bonds to raise funds for their business. There was a lack in Saudi Arabie of important funding channels to provide the necessary liquidity to finance the real estate companies (finance institutions and developers) projects at a relatively low cost. One of the pioneers in the field are Dar Al Arkan, one of the biggest developers in KSA who wish to issue Sukuks to raise fund for their projects. They have already processed their request.
Still this is a very immature market at infancy stages with much potential for growth which would further boost the real estate sector as a whole.
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Trading financial instruments and Bonds in the new market will be through licensed financial brokerage companies, using the same portfolios used for the trading of shares. This market will provide major services such as inclusion, send orders, execution, clearing and settlement, and the dissemination of price data. The launch of this market is an important step in the trading strategy to diversify financial products to investors in accordance with their investment. Source: Capital Monitoring Agency regulations
The GCC aggregate bond market witnessed a decline in 2008 however the long term prospective for Sukuk issuance remain positive.
The GCC aggregate bond market which includes both conventional bonds (‘bonds) and Shari’ah compliant bonds (“Sukuk”) decreased substantially to $18.1billion in 2008, down by 62.4% compared with the amount raised in 2007, through 76 offerings. The Sukuk market share continued to grow in 2008 to reach 44.80% up from 40% in 2007 of total value issued by GCC bond market. Nonetheless, conventional issuances still raised a greater amount with $9,98 billion compared to $8.1 billion for Sukuk. The total number of issuances, during 2008, was 42 Sukuk issuances (more than 45% of Sukuk issued being “ijara” – lease financing) and 34 for conventional bond issuances. Corporate issuances occupied the largest segment of the aggregate bond market in 2008 with $6.9 billion and a market share of 53.4%; however, in terms of activity, 48 sovereign issuances were raised, compared to 28 corporate issuances, The decline in issuance in 2008 was a result of global market turmoil, drying up of liquidity, widening of credit spreads, and investors’ wait and see attitude as well as debates over the shari’ah compliance of some Sukuk structures. 267 163 Sukuk Issuance by Country 1,333 3,480 Country No. of Issues Total Size 1,334 (US$ mn) UAE 21 8,800 Kuwait 23 6,300 Saudi Arabia 4 1,900 3,422
Bahrain 26 716 Financial Services Real Estate Power and Utilities Qatar 2 301 Oil and Gas Construction Conglomerat e Total 76 18,017 Total Issuance by Sector, 2008 8.9 Securitization Many countries have been developing the legal and financial infrastructure to support the securitization of mortgages. Mortgage securitization and asset backed securitization (ABS) in general, involve the sale of the assets to a special legal entity that is bankruptcy remote from the lender but is essentially almost invisible in terms of tax effects and operating autonomy. The cash flows that come from these assets pass through this entity and are distributed to the owners of the securities in ways that are pre determined at the time if initial structuring.
Securitization can have three functional advantages over retaining ownership of a loan and issuing a bond. 1. It may permit the lending entity to shed some or all of the credit risk arising from the loans, thereby reducing its need for capital. 2. It eliminates liquidity or funding risk by securing funding for the life of the loan. 3. It allows for the allocation of these and other financial risks, such as interest rate risk, payment risk or currency risk, in almost any way desired.
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Nevertheless securitization in Saudi is still in its infancy stage. In late May 2009, the finance minister, Mr. Ibrahim Al Assaf, told Reuters that a new state owned mortgage securities company would be established in conjunction with the new housing loan legislation. The state owned firm would essentially purchase mortgages from private or public sector lenders and then securitize the loans into Sharia compliant bonds, or “Sukuk”, which would be tradable on a secondary debt market.
Mr Al Assaf said that the new company would be set up before the end of year, assuming the new mortgage legislation is introduced by this time.
In addition, officials have said the state owned Public Investment Fund (PIF), which is controlled by the finance ministry, would look to take up to 40% equity in mortgage lenders once the new legislation is implemented. 8.10 Real Estate Development Fund
REDF General Information The REDF, established in 1974, was set up to meet the needs and aspirations of the Kingdom's citizens by helping to raise the quality of life in society through the development of high quality housing. The REDF is associated with the Ministry of Finance, and it is run by a committee consisting of a president and seven members. The president is nominated by the Minister of Finance and then he is appointed with the approval of the president of the counsel of ministries. For the seven members in the committee, four of them represent the following ministries (the Ministry of Finance, the Ministry of Public Works and Housing, the Ministry of Planning and the Ministry of Municipality and Rural Affairs) for the other three members, they must be renowned individuals specialized in public housing The REDF started with a Capital if (250,000,000 SAR) and the allocated budget for the fund has increased during the 21 years since its establishment to (73,769,000,000 SAR) (1996/1995) The REDF played a huge role in increasing the number of housing. Since its establishment it has adopted the policy of granting incentives to encourage people to take on loans. These incentives ranged from exempting a percentage of payments if payments were made on time and if they were paid in full in the beginning it also offered a relaxed 25 year payment plan. Source: The Study of the Real Estate Situation in KSA – King Saud University, 2000
REDF flow of Disbursements versus Repayments from 2000 2006
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Geographic concentration of REDF loans – driven by population demographics
NCB Capital – Real Estate Sector – Kingdom under construction – June 2008 Total Outs tanding REDF Loans REDF Loan Requests versus (SR billion), 2002 - 2007 Loans Extended 1984 – 2004* Total new loans Extended (SR bn): 1000 Requested 2.3 2. 3 1. 7 2.5 3 .9 3.6 800 600 Extended 68.7 69.4 69.0 68.9 71.2 73.4 400 200 0 2002 2003 2004 2005 2006 2007 1984 1989 1993 1998 2004
1. From 1975/76 until 1992/93, the REDF had advanced 412,000 personal loans worth SAR 108 billion which had resulted in the building of 489,000 living quarters. 2. Since its establishment, the total number of loans financed by REDF (until 2004) totaled 479,554 value of which amounted to SAR 126.79billion (resulting in construction of 575,464 housing units). 3. In 2004 figures, total investment loan expenditures were SAR 4,668million whereas the collections amounted to SAR 4,186million (which constitutes 89% of total expenditure). 4. The Fund also advanced 2,500 investment loans with a total value of SAR 5.2 billion which contributed to the construction of 29,000 living quarters, 2.9,000 offices and 5,000 trade exhibitions. 5. In 2000/2001, it advanced loans worth SAR 1.9 billion 6. The Saudi “Shura” Council agreed to increase the amount of mortgage loan provided to the Saudi Citizen to (SAR 500,000) to meet the high construction costs, to our knowledge the loans that have been disbursed before this agreement was (SAR 300,000) 7. The council has also approved to raise the REDF’s capital from SAR 91 bn to SAR 200 bn 8. In the past Companies were eligible to get Commercial Investment Loans – on “Qard El Hassan” basis (interest free). That is no longer applicable. In the past, the Kingdom was in need for residential units and commercial (fear of crises due to mass inflow of workforce). But now, REDF’s main interest is on nationals not the investment companies. Though this remains debatable whether there is a need to
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Source: Saudi Arabia Ministry of Finance Statistics
Eligibility Criteria for REDF Loan Approvals 1. Maximum amount not to exceed SAR 300,000 2. Applicant is Saudi National. 3. Must be at least twenty four years old, unless: 4. Married (twenty one yrs. and above acceptable) 5. Orphans 6. Divorcees after two years of divorce’s date 7. For women to qualify for a loan, they must meet either of the two following criteria: 8. The loan applicant must be unmarried and forty years old or older. 9. The loan applicant must be a widow or divorced. 10. The loan applicant must not own a house independently. Exception is made for owners of old homes that are unfit for dwelling, and which the owner plans to tear down and reconstruct. 11. The loan applicant must not previously have been granted a loan from the REDF. 12. Target Population: All Saudi nationals (including low to medium income, University Doctors and Teachers, as well as Government Officers…) 13. 1st or 2nd home owners
• On application: Applicants must be 1st owners, but no investigation is currently being held. However, Applicants who have “popular houses” will be granted a 2 nd home.
• The loan specifications might change from time of application till time of approval (applicant might have already purchased 2 nd property, and will use the approval for the financing, or changed location from approved areas due to relocation…).
• Finance charges fees:No Charges whatsover. Financing is based on “Qard El Hasan” (no interest)
REDF Challenges 1. While the fund has played an important role in the development of housing, the potential impact of banks and other mortgage players cannot be understated. The huge underlying demand cannot be supported by the REDF above. According to the Saudi Gazette, 450,000 applications await processing as of February 2008. 2. Inability to meet demand for loans: Amid rising demand, REDF has been unable to meet the requests for home finance. By end of 2004, there were some 400,000 outstanding loans requests 3. Long waiting lists: REDF is able to meet about one quarter of the requests for home loans, resulting in waiting lists of up to 10 years 4. Collection of installments: REDF has struggled to collect monthly loan installment payments from its clients
8.11 Relevant Government Credit Agencies – Specialized Credit Institutions 1. King Abdullah Bin Abdul Aziz ( “Al Birr Bi Walidayh” project) housing units for underprivileged Saudi population:
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a. One of its many projects within the Kingdom, the King Abdullah Bin Abdulaziz to his parents for housing development will implement the first phase of its housing development in the province of Al Aflaj which will cost 35 million riyals. The project includes 100 residential units, a mosque, a community center and a training center b. Adding to that, the Sultan Bin Abdulaziz Foundation for charity housing projects within the Kingdom is going to implement 71 housing units in the province of Algat with cost of up to 20 million riyals 2. Prince Walid Bin Talal project 3. Prince Selman’s projects for low income Saudi nationals a. The design of 838 housing units by the Prince Salman Charitable Housing in the following cities, Riyadh, Al Kharj and Almzahmiah, Alqoieiah, Al Zulfi, Dharma and Shagraa, with a total cost of 252 million riyals. 4. Others (including NGOs and charity org.) a. The Ministry of Social Affairs plans to create 4000 new housing units over 4 years that will benefit those on low income in the various governorates of the Riyadh region. The first phase of the project will begin with the creation of 1000 residential units at a cost 150 million Riyals
8.12 Public Pension Agency/Other Funds or Programs for Housing
Public Pension Fund: To the best of our knowledge the Private pension fund (PPA) does not have any pension housing program. However, they do invest heavily in real estate (commercial & residential) projects that have a good return on investment. However, such projects do not target the underprivileged & low – Middle income segments. Management for such projects is being done by Project Management / Investment arm AlRiyadah Company established by royal decree M/9 on 9/2/1428. http://www.raid.com.sa/about_ar.asp
8.13 Summary of Challenges & Gaps 1. Banks currently are restrictive and very much selective in giving loans to developers (nor contractors) 2. If banks give loans to developers, the latter can reduce the price of villas/homes (instead of cost of capital/cash usage in developing the projects) and everybody would be happy: less cost on the citizen, and better options for bigger/better homes, while the developers are also happy with quicker turnover even if at lower cost (easier to dispose of). 3. The SAR 9bn payable to REDF budget at previous average of SAR 300,000/loan, totaling 30,000 beneficiaries). If the government used this amount to support the interest/profit rates of banks and real estate finance companies (and let the applicants pay 1% for example of the interest/profit rates while the remaining % is subsidized by the government). This would lead to less load on REDF since many applicants (those who could afford to pay the 1 2% interest rate) would rather not wait 10 15 years to get his loan disbursed. This would also allow REDF to focus more on the underprivileged 4. Construction companies do not have enough cash liquidity/coverage to sustain the construction work (in majority, with the exception of the huge large scale ones such as Bin Laden Group, Saudi Oger, Al Seif…). a. Banks do not give them financial loans, thus creating financial stress to some of them b. Bin Saedan did not have any problems with the construction companies they work with. However, Mr. Salman has heard of many issues with some developers mainly due to the liquidity issue.
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5. The average default rate across the kingdom on real estate loans is between 3 5% (which is relatively good). 6. Developers do not currently have any social housing projects… it is just simply not profitable enough (they do not cater for housing units (apartments) less than SAR 250,000 7. GHA would have a greater role in the kingdom by having the following initiatives to streamline the housing sector: a. A formal classification of contractors/construction companies must be created (not only for public sector work but for the entire market). Thus all parties would know company's x previous success/failed projects, and what is the scope of business and amount sealing they can afford to work with. That of course includes the quality of the construction and time spent to completion… b. The supervising engineer/architect must be liable for lifetime about the building he supervised. Building accountability is a bug issue in the sector to ensure quality of building, and proper maintenance c. New building technology initiative: Developers would normally have to pay triple the normal cost to try new technologies. o GHA could come up with a technical committee test the current and modern technologies ( ا ا ا ه ة و ا ء و ا ) o Then a JSC company consisting of all classified developers could be established based on the recommendations of the committee to build a factory for new building material technology (mass production with a competitive price, get support from SABIC for petro chemical construction related material) o Provide licenses for multiple floors in certain areas (and not only in the expensive areas like Olaya and Fahd roads in Riyadh where 20+ floors are acceptable in some zones). Give way to at least 4 stories high buildings to make it financially feasible for developers to build buildings, and hence make cheaper units to the low middle income as well as possibly the underprivileged 1. According to Mr. Mubarak, General Manager of SIMAH, One surprising news is that banks currently prefer deposits over mortgages simply because the latter has lower profit rates (deposits are currently more profitable), which would probably be why banks are not as enthusiastic and aggressive as anticipated in their housing products, and educating their own access to clientele on such products. 2. In addition to the above, finance companies are most likely moving towards corporate finance/leasing instead of retail (individual mortgage lending) due to the following reasons: a. Low market (small number of applicants) b. Difficult access to the wide public (unlike banks, they do not have access the huge clientele database) c. Risk of construction quality: Since the building codes have not been enforced, finance companies are at risk of financing a home which might not be up to the standard) 3. On a positive note, according to recent news (Al Aswaq.net, 04/07/2009), Riyad Bank just signed an Islamic finance agreement with Dar Al Tamleek (a recently established finance company in June 2008 with a capital of SAR 1bn and specialized mainly in real estate finance), whereby Riyad Bank would finance (Islamic approved loan) Dar Al Tamleek for SAR 435 million (USD 116mn.) which would help the latter in providing affordable houses to the Saudi citizens in their endeavor to bridge the gap between the demand and the supply. According to Dar Al Tamleek Chairman of the Board, Mr. Ali Al Zeid, latest statistics show that the housing sector will show shortage of almost 1mn. housing units in the coming three years; whereby the estimated demand for Riyadh alone is at 45,000 units/annum (Al- Aswaq.net) .
8.14 Conclusion: Proper financing would lead to better lifestyle and wider access to homeownership by wider segments of the population. Finance would lead to more affordable housing (cheaper) with better quality (encourage competition).
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The country has sufficient internal liquidity to sustain many if not most of the housing projects, mega projects inclusive. However, it is due to the global crunch that banks are reluctant provide credit to house suppliers as well as end users. Nonetheless, recent events show some positive trend of improved lending. This might have been due – at least in part – to the government’s efforts to boost credit lending through SAMA’s fiscal policies and controls. Still, it is anticipated that the housing finance will not be liberated and take its full size until the mortgage law is out and banks offer proper education to their wide customer database about offered products. Until then, the mortgage market will remain shy without reaching its limits (though is on the rise).
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9 LEGAL / REGULATORY FRAMEWORK There is no complete system of housing related regulations in Saudi Arabia. Rather, there are a number of royal decrees that address one or more aspects of housing related matters.
Number Housing Related Regulation Regulation in Arabic
ا ا ن . .General Housing Authority's Regulation 1
م ا ات ا ر . The system of Ownership Units Estate 2 and their Sorting.
أ ر ا رات . .Organization of Real Estate Rents 3
ا م ا ا ا ا ا Statute of the Corporation of King 4 ن ا ي . Abdullah Bin Abdulaziz for His Parents for Developmental Housing.
م ا ر ا دول ا ون ول ا Law of transferring Proprietorship of Real 5 ا . .Estate to Citizens of the GCC Countries
م ا د ر وا ر . Law of Non Saudis Proprietorship of Real 6 Estate and Investment on thereon.
م ا ق وا . .Law of Roads and Buildings 7
م ا ف ا رات ا . Law of Disposal of Municipal Real 8 Estates.
د ا ر ا ري / ا ح Real Estate Investment Funds 9 ا ه ت ا ر . Regulation / Conditions on the Contribution in Real Estate offering.
ا ر . .The Real Estate Agencies Regulations 10
م ا رآ ا ات ا ر ا . Law of Time Sharing in Tourist Real 11 Estate Unites.
م ز ا را ا ر . Distribution of fallow lands Law 12
م وق ا ا ر . .Law of Real Estate Development Fund 13
م ع ا رات ا وو ا ا Law of expropriation of Real Estate for 14 ا ر . the Public Benefit and the Provisional Seizure of Property.
These laws and regulations and the executive bodies that oversee them do not currently work hand in hand in one complete system. Many rules are still only being drafted.
9.1 Framework for Analysis
Housing policy shapes and is shaped by the legal environment. The following provides a preliminary assessment on whether the existing legal and regulatory framework in the Kingdom of Saudi Arabia is
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conducive to the provision of affordable housing. The analysis focuses on the typical elements of the real estate production process, namely
• Supply of land : New developments require that developers or future owners can purchase land. That, in turn requires a liquid market for land.
• Planning and licensing : The planning and licensing rules should enable the competent authorities to establish macro and micro zoning plans efficiently (in a smooth process and with sensible mechanisms for integrating planning decisions at various levels of government). They should also provide for adequate processes, mechanisms or tools that enable the authorities to enforce and implement their planning decisions by having adequate influence on the actual trading in land and subsequent development thereof as well as means to control land speculation.
• Provision of infrastructure : The efficient provision of the necessary infrastructure in newly developed areas requires adequate planning and enforcement mechanisms that enable providers of infrastructure to make the necessary investments.
• Financing developments and acquisitions : The financial system must provide adequate financing options for land purchasers and land developers or owners willing to build on their land and it must enable potential purchasers to finance the acquisition of residential property if they do not have (as will be rule for low income families) sufficient own funds to pay for an acquisition.
• Existing investments : Renting and sales.
At this stage the analysis is high level analysis that establishes the main characteristics of the existing legal system and suggests areas for further research that should be explored by reference to existing practice and rules in other countries.
9.2 Sources of New Land
Significant amounts of land are currently owned by the Kingdom (formally owned and administered by the Ministry of Finance) and the municipalities.
State Land
While the large amounts of state owned land have been identified here is currently no regulation governing the distribution of state owned property to citizens.
Municipal Land
The municipalities are subject to restrictions on the disposal of land under the regulations on the disposal of municipal real estate. These are primarily designed to protect the existing asset pool and ensure that no transactions at an undervalue occur. The regulations are not designed to trigger the release of significant amounts of new land for residential use.
Fallow Land
In certain circumstances users of fallow land may apply for an order transferring title to such fallow land to them under the regulations for the distribution of fallow land. However, as these regulations will only apply to a limited number of eligible applicants and only in certain bespoke circumstances, their relevance for the housing market is limited.
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9.3 Regional and Municipal Planning and Licensing
Planning and the Enforcement of Planning Decisions
Zoning is governed by the regulation on roads and buildings [insert correct quote]. The competent authorities, i. e. the municipal planning board, can designate areas for various uses, such as residential, commercial or industrial. The municipality also has the right to decide on the location of roads, and they can expropriate parcels that are required for road construction. They can also designate particular areas for residential use and establish binding rules for construction in such areas. The authorities also have the right to expropriate land for public purposes. In case of an expropriation a compensation has to be paid to the owner.
The law appears, however, largely restricted to enabling the authorities to decide on the permissible use of land by establishing the use of individual areas and their enforcing this decision by prohibiting any other use. The role of the authorities is therefore rather reactive than proactive. While they can sanction illicit behavior, i. e. a violation of restrictions imposed by zoning decisions, they have only limited means of actively steering the development of their respective areas. In particular, they have no means of systematically gathering information on land use and land prices, and they cannot really control the market for land and enforce legitimate behavior in accordance with their planning decisions, such as force an owner of land in a residential area to actually construct houses on his land.
Furthermore, there is no clear guidance on the process of inter governmental planning at the various levels of government (national, provincial, municipal).
One typical concern for planning authorities wishing to create an efficient market for land that is to be used for construction is land speculation. Where limited amounts of land fit for construction exist, it is possible for large land owners to artificially curb supply and keep prices high.
Infrastructure
The law on roads and lands does not contain specific rules on infrastructure development in the planning process, other than the construction of roads. It does provide for the possibility to expropriate land for the public benefit, which includes not only the building of roads but also of water supply lines, electricity and gas supply lines and sewage lines.
Where or not the authorities actually use this right efficiently used in practice is a matter of further factual investigation.
Construction
The law on roads and lands contains rules on the granting of building licenses. Where or not these are efficient in practice will depend on the actual administrative practice of the competent authorities. It is apparent though that the law does not contain any rules that are specifically designed to accelerate the licensing process. In order to further examine this, interviews with builders and owners that have sought a building license would be required. The factual report has identified a number of quality issues in construction projects
While the national committee for the Construction Code under the ministry of Economy and Planning has been working on a planning and building code. Details of this are described on page [69].
Expropriation
The "Law of Expropriation of Real Estate for the Public Benefit and the Provisional Seizure of Property" issued by Royal Decree No.15 on 11/3/1424 corresponding to 12/5/2003 (the "Law of Expropriation") applies. Whether compensation is given, and the extent of the same, is within the determination and
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discretion of the committee set up under Art.7 of the Law of Expropriation. Usually compensation is awarded at market value
Further Study
The comparative analysis should focus on the scope of instruments that are at the disposal of the planning authorities. These may include:
• The process and scope of basis planning decisions (including an analysis of process of integrating planning decisions at various levels, such as nation wide planning decisions, state or provincial planning and municipal planning and the level of authority awarded to the planning authorities at the various levels)
• The planning instruments and enforcement remedies at the disposal of the relevant authorities, such as enforcement orders and fines in case of a violation of existing rules and plans and expropriation rights, but also means of gathering and information on the market for land, such as reporting obligations of notaries or parties to a land sale, and methods of controlling land sales such as pre emptive rights, restraining orders on land sales or others, and finally the possibility of orders to use land in an area or to construct thereon in accordance with the planning decisions they have taken.
• The licensing process and how it can be made more efficient while not compromising the quality of supervision and adherence to, sound and safe construction standards. In particular, it may be considered whether it may be appropriate to grant certain privileges to applications for a residential building license, such as a mandatory deadline for a decision (yes or no) by the authority failing meeting of which a license is deemed to be granted.
9.4 Ownership of Land
Eligibility for ownership
Ownership of land falls into three categories.
• For Saudi nationals, there are no restrictions
• For GCC nationals, ownership of residential land is permitted within the limits of the regulation on ownership and investment in real estate by GCC nationals [provide correct citation]. There are restrictions on the amount of land GCC nationals may own, on the uses, on transfers after acquisition and a building obligation.
• For non GCC nationals, owning land requires a special permit.
These rules would not appear to have a significant impact on the supply of land. Permitting ownership of real estate to a larger circle of possible owners might even increase competition for eligible land and thus increase prices.
Condominium ownership
There is a regulation on condominium ownership, the Regulation of Residential Blocks and Sorting [please provide correct reference and correct translation] which governs the process of splitting up residential blocks into residential ownership units as well as the relationship between owners after that.
9.5 Financing
There is no particular legislation on real estate financing at the moment. Real estate finance is thus governed by general rules on loans, Islamic finance and security. One salient feature of Saudi law on
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financing is the absence on reliable legal rules on the pledging or mortgaging of real estate which has made asset based lending difficult. Uncertainties about enforcement options and timelines will normally make it more difficult to obtain asset based credit.
Mortgage Law
There is now a draft mortgage law that will, once implemented, reduce the legal uncertainties, and thus the implementation of a new mortgage regime should facilitate the financing of real estate for Saudis that are not eligible for name or cash flow based lending. However, as long as there is no practical experience with the mortgage enforcement process and practice of the courts in such procedures, the benefits will be limited, and trust in the mortgage system is likely to develop only over a certain period of time.
There are suggestions that the mortgage law may be enacted before the end of 2009, with preparations being made for a new government owned securities firm. There are plans to establish a state owned firm that would purchase mortgages from private or public sector lenders and then issue sharia compliant asset backed securities, which would eventually be tradable on a secondary debt market. Essentially this would appear to be a sharia compliant version of the US Federal National Mortgage Association, or Fannie Mae.
Development and Construction Financing
There are not particular legal rules on development and construction financing. In particular there are no mandatory trust regimes protecting the customers of developers that may make down payments, so that these bear the full risk of a developer insolvency.
Acquisition Financing
The same applies to acquisition financing.
Insolvency and Bankruptcy
There are no final rules on the treatment of creditor rights and collateral over land or down payments made by a buyer in the insolvency of a counterparty. To some extent these will be addressed in the mortgage legislation. Further reform efforts will be required to enable the development of a securitization based refinancing market.
Further draft Legislation
There is, in addition to that, a draft regulation on non depositary financial institutions in general and real estate finance companies in particular that would create non depositary financial institutions dedicated to the provision of real estate finance. While the implementation of these institutions may facilitate real estate finance, it will be subject to the jurisdiction of the Saudi Monetary Agency.
It will be crucial that the Kingdom provides a viable framework for real estate finance (both at the retail level and the refinancing level) in order to provide the necessary credit for individuals wanting to buy a home that do not have sufficient equity and are dependent on debt finance.
9.6 Renting
Occasionally, ceilings for rents or rent increases have been introduced and again be cancelled in individual areas. There is, however, no statute that would govern the rights of landlords and tenants, restrictions on termination of rental agreements and rent amounts or rent increases. While on the one hand that avoids imposing restrictions on landlords and thus may make investments in residential real estate attractive, it will expose tenants, and in particular those who do not have sufficient funds or sufficient education to avail themselves of their contractual rights, to aggressive behavior by landlords.
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Further research should therefore focus on whether it is appropriate to introduce specific regulations on tenants and landlords rights and obligations under residential leases.
9.7 Financial Assistance for low income residents
Land Distribution Programs
There is no organized land distribution program targeting individuals.
Subsidy Programs
There are number of housing programs further described in this report.
9.8 Existing Agencies
General Housing Authority
The General Housing Authority is described in detail on pages … As is often the case with newly created Saudi Agencies; the General Housing Authority has a matrix function but not does not have actual authority in respect of various elements of the legal framework of the housing market, such as planning and licensing or the regulation of the financial markets. It will have some authority to establish programs offering financial assistance to market participants, depending on future budgetary decisions which have yet to be made.
Saudi Real Estate Development Fund
The Saudi Real Estate Development Fund may grant medium and long term financing to Saudi individuals with medium income or corporate entities that construct residential blocks for multiple residential users (owners or tenants). The Fund may either administer these financings itself or delegate this task to a bank.
Prince Abdullah bin Abdulaziz Corporation for Parents for Developmental Housing and other Charities
This institution has been established to provide housing for the most needy. A detailed description is given on in above section 6.5.3 (Charity & Non Profit Organizations Sector).
9.9 Real Estate Developers and Other Experts Opinion on the Legal Framework
Above laws/regulations and executive bodies that oversee them do not currently work hand in hand in one complete system. Many rules are still in draft mode,
By talking with industry experts in order to understand the main issues and challenges facing the sector from a legal perspective, there was a more or less general consensus to the following:
1. There is a need to regularize the industry. Regulation would bring credibility to the real estate business 2. According to the World Bank report, the government should not be the mortgage provider for the housing market, but the facilitator. In international experience, the only time where government was successful at being the mortgage provider is when the private sector leads the efforts. 3. Developers must not announce their projects before they actually have the plan and the financing to do it. . Several developers have been selling thousands of 000 units and announced several towers while they are now lagging on their commitments due to the financing going somewhere else. They might not continue with their declared projects. Therefore, in order to prevent further issues, the government should exercise tighter control on what s announced and how feasible is the project at hand (please refer to the real estate contributions issues).
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4. As owning an apartment is becoming more and more on the demand, there is a need to establish a Home Owner association for such residential projects. Efforts form the government are being done to regularize this section of the market (now required by law), and the developers (such as Dar Al Arkan) are trying to push for it through slow education and coordination with the landlord. While this is still individual efforts, it is helping the integration of such concept. For example, Dar Al Arkan are providing 1year free maintenance (for the first year only) to help develop the home owner association. 5. Urban planning related licenses: Dar Al Arkan’s Shams Al Riyadh project in North of Riyadh was given license to only build villas (no apartments there) which creates missing opportunities for both the developer and the end user. (Source: Interview with Dar Al Arkan)
Given the above, one must still acknowledge that the legal system underwent many changes, and that the kingdom is now offering extremely competitive regulations for foreign investors at certain levels and for certain industries.
9.10 Housing related laws and regulations (Saudi Real Estate Ownership Law)
Although the absence of a comprehensive Saudi mortgage law leaves a considerable gap for the investors in the real estate market, the authorities are making fast headway to develop more clarity and comprehensiveness to the Saudi Real Estate laws. As per the current practices a variety of long term leases and ownership options are being used in the housing market.
The Kingdom’s foreign investment law passed in 2000, revised the way foreign investment could be conducted in the country. The law enabled foreigners to have 100% ownership of the projects. Although restrictions and some necessary approval requirements apply, a non Saudi, non GCC citizen who intends to buy real estate must be a legal resident of the Kingdom and must purchase the property for his own use. The law also offers permission for foreign investors to own real estate required for the project itself or for employee housing of the licensed projects. The exception on foreign ownership prevails in the holy cities of Mecca and Medina, where non Muslims may have limited access.
9.11 The Building Code
While the national committee for the Construction Code under the ministry of Economy and Planning has been working on a planning and building code, large firms such as ARAMCO, large developers, and Government agencies appear to adhere to their own internal construction codes.
The World Bank, Kingdom of Saudi Arabia – Assessment of the housing Finance Sector
9.12 Housing finance law and regulation
Recent developments suggest that the long awaited mortgage law may be enacted before the end of 2009, with preparations being made for a new government owned securities firm. In late May the finance minister, Ibrahim al Assaf, said that a new state owned mortgage securities company would be established in conjunction with the new legislation. The state owned firm would purchase mortgages from private or public sector lenders and then securitize the loans into Sukuk (sharia compliant asset backed securities), which would eventually be tradable on a secondary debt market.
Essentially this would appear to be a sharia compliant version of the US.s Federal National Mortgage Association, or Fannie Mae. Mr. Assaf said that the new Company would be set up before the end of year, assuming the new mortgage legislation is introduced by this time. In addition, a Reuters report from May quoted two unnamed sources as saying that the state owned Public Investment Fund (PIF), which is controlled by the finance ministry, would look to take up to 40% equity in mortgage lenders once the new legislation is in place.
Source: Economic Intelligence Unit (Business Middle East, edition of July 1st to 15th, 2009)
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9.13 Conclusion The existing regulations are largely the result of singular initiatives or isolated responses to policy requirements. There is not yet a conclusive and systematic framework for the real estate market as a whole. That relates to access to government land, planning and licensing, financing and exits for investors. A comparative analysis of these segments of regulation (establishing existing legal framework and best practices in other jurisdictions) should identify options for improvement.
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10 APPENDIX
10.1 General Points of View of Local Housing Experts
1. It should be noted that the availability of information pertinent to our research is often limited and, in various instances, difficult to verify. 2. According to the subject matter experts (SMEs) and some studies in KSA, the “habitat” has been defined as one room with one restroom within its premises, with access to running water. 3. At the current moment, KSA still lacks a housing index. Even the land pricing index is more of a list pricing of bidding without actually stating the nature of the land, type of purchase, reason to use…etc. hence, any data based on such indices will unfortunately be not entertained due to lack of data and structure/platform for such indices 4. Housing Demand Assumptions/Criteria: a. People preference by Income is extremely difficult to obtain. We are trying to gather data from the Ministry of Labor. Statistics from the Public Pension Agency and GOSI are not always readily available, up to date, and accurate in terms of Saudi citizens’ monthly salaries. In addition, salaries do not reflect total income since many have on the side businesses that increase their income significantly. b. According to the interviews we had with the real estate housing experts (including developers), the general trend is that the first and foremost criteria for selecting a home is income. Saudis apparently in majority would enjoy living in villas (and upscale…). However, the main deterrent would be the income. 5. On Housing Supply: a. Volume of current housing stock: Unfortunately KSA does not yet have a uniform system to acquire accurate data on the current stock. In addition, it seems that the licenses (Ministry of Municipalities and Rural Affairs MOMRA) and title deeds (Ministry of Justice) have the data, yet it might be misleading since title deeds for e.g. might cover type of property (residential/commercial…) but do not cover the type of dwelling (villa/duplex/ apartment…). Besides one might be able to tell whether a title deed is for a residential building, but without knowing the actual number of units (apartments in this case). b. Volume of housing stock under construction (be it start up date or expected date of completion): KSA lacks a national source that registers all the construction works accordingly. For example some published information on large scale residential projects might be available, however this covers a specific target clientele and hence is not representative on national level. 6. General Housing Characteristics such as the cities and the large governorates. According to ( ا ) a. The urban areas the SMEs (Dr. Khalifa and Dr. Bahammam), such urban areas’ development is subject to the development/growth of the middle class. include farfetched areas, with ( ا ع ا و ا آ ا ) b. Rural areas and popular housing difficult roads, small and disbursed population groups, along with the below average quality of homes. c. General geographic specifics and disparities (housing condition by geographic location).
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7. Secondary market is an immeasurable market: we cannot count of renovation licenses, and there are not clear indices to count on for such market. All is based on speculations and educated guess at best. 8. Problems of Housing Units Depreciation (according to the SMEs): . ( ا ل) a. House aging and consumption b. Neighbourhoods are becoming a fashion… you move where the new neighbourhoods are being constructed as the new “posh” areas for example. c. Absence of culture of taking care of house maintenance. d. Absence of controls/licensing and minimum set of requirements for developers and contractors. e. No general interest in sustaining and improving the neighbourhood… with few exceptions (depending on the nature of the residents in each neighbourhood). 9. Historical trends in housing provided schemes (Dr. Bahamam): a. Grants through the REDF b. General housing through the ex Ministry of Public Works and Housing c. Public sector housing – provided by the government to its employees, depending on the level and the government body (military, education, paramilitary and general security…). 10. Land market – The main reason why the land market is huge in the kingdom is generally attributed to the fact that the citizen buys raw land, gets the services connected free of charge from government, then land’s price appreciates. 11. Cost of buildings increase while the quality has decreased since there are no standardization of construction. e.g. windows might differ in the same villa by 1cm. 12. On quality of construction: a. Housing units started to witness good improvements in the quality of building. b. Previously, we had personal developers. Now quality increased even if sometimes one reduces the quality to save on $. c. Nowadays, many developers are moving towards professionalism. Still many developers are personal developers 13. Building Code: a. By royal decree, the building code shall be applied for a period of two years (on trial basis). b. The executive body is yet to be determined. c. Up to today’s date, the building code does not have an executive mechanism. d. Initially the building code will increase the continuous cost (since will require better and specific specs that would be more costly than the usual norm), but eventually maintenance and continuous costs will decrease over the long run. 14. Very Important Note: Hidden Stock – many married couples are living with their family… one of the reasons is economical, second is that houses in KSA are relatively large in size. That might be It is . " أز " the attributed reason to why in KSA; people have not felt yet the housing pressure very important to note, thought we don’t have statistics about it to prove the point. 15. Housing Finance: a. Once solution is that government would buy the banks’ toxic assets (securitization) and unit prices might go back up again. b. The percentage of home building that received some sort of support as follows: i. 1/2 got their funding from private savings and/or support from family. ii. 1/3 got support from REDF. iii. Small percentage by banks and FIs.
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16. On rentals: Risk of rental to increase was every 6mths especially during the crazy patterns of increased rentals due to the stock markets. 17. Income: SAR 10,000 20,000/mth is considered middle income in Riyadh. Same income might be considered wealthy or well off in other regions of the kingdom. The assumption is we are going to try to get the figures from GOSI and PPA through the median.
10.2 Barriers to the Housing Sector Growth: 1. One barrier is the stock market which took much of the investments at one stage from this sector (during the peak), after which, many lost their home, which did not help the market. On an upside to the issue, many of those who gained during the peak of the market did build new homes for themselves. It is however very difficult to assess the figures due to lack of available resources/credible published studies 2. There is a kind of exaggeration in the cost of construction as well as in the price of developed land Q& A Session with Coldwell Banker – Saudi Arabia (Sat. June 20th, 2009), Meeting with Mr. Mohammed Al Joujou, Appraisal Management Manager
3. Based on the demographics, economic transition and majority of the research made on the housing sector in KSA, it is clear that there is a real demand in the housing units and a shortage in the supply. 4. Villas have been the most favourite housing unit but due to the young population structure (constituting the largest segment in KSA) and the changing mentality of this segment (more educated, seeking independence) 5. There is a slow shift in demand for apartments as a cheaper alternative to rent. A comprehensive study should be made on a national scale to capture the real demand of the population by income and by preference, on the other hand serious government initiatives are expected to tackle the needs of the under privileged and the low income segments of the population through rolling out programs at the national level and by region that would include the private sector as an important player in the housing sector, while creating checks and balances as a government control tool to support, monitor, and regulate the sector through clear accountability matrices which cover and streamline and insure coordination among all stakeholders: a. As such, GHA has a pivotal role in championing such endeavour with a along term plan (10 15 years plan) while working on quick wins over the short terms (streamlining the stakeholder roles and responsibilities, and role out at least one programme that tackles the low income and under privileged population b. Therefore it is recommended that the GHA launches a national wide study for the coming 6 months to identify the critical issues that need to be addressed first, coordinate with REDF, charitable organizations and other government peer agencies to develop such programmes c. The role of the private sector is extremely important but without the government direct support, guidance and thrust this sector might loose momentum d. Other possible quick wins initiatives would be to establish a housing index and enforce the proposed building code as a part of advocating the culture of transparency and raising the bar of quality building across the kingdom, hence improving the sector as a whole.
10.3 Bottlenecks to the housing market
As part of our endeavor to collect primary information from subject matter experts (SMEs), we got the following insights from a recent interview held on 17/06/2009 with Mr. Nabil Al Mubarak, General Manager of SIMAH, the Saudi Credit Bureau:
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4. Currently there is a trend to confirm that there is a shortage of supply, however, with many interested parties in the housing sector, and government initiatives to address this issue, there is a risk of having an oversupply in the coming few years. 5. There is no current legal structure or framework for the housing sector. There is no system or mechanism to put things in place. 6. Part of the encouraging news is that it is expected that installment companies (real estate finance companies included), to become regularized, most likely under SAMA (Saudi central bank)’s umbrella. The question would be when will that happen, no one really knows yet. 7. One initiative by SIMAH is that they are currently considering a proposal to include under their own reporting system mortgage and rental companies, which, should it occur, would bring great benefit to the housing market from more transparency and proper sizing of the market (rental & house financed market), to a more regulated credit risk which would in theory decrease the default rates and slowly enforce the culture of good credit history in the mentality of the population. It is estimated that the subprime market at 10% of the market.
10.4 General Macroeconomic Indicators
Table 1 – General Population Trends
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Table 2 – Real Estate Sector to GDP
Source: Ministry of Economy & Planning
10.5 Upcoming Projects
Completion Value Area Project Name Description Owner Location Date (SAR) Riyadh Area 3.2 mn sq.m Durrat (Central Number of Arriyadh Real 800 housing Region) Durrat Al Housing Estate units Riyadh – Units Development 3 bn North Riyadh Phase 1 Tennis courts, Company Facilities mall, spa, and mosques Area 3.2 mn sq.m Durrat Number of Arriyadh Real Durrat Al Housing 150 villas Estate Riyadh - Phase Units Development 2009 251 mn North Riyadh 2 Villa size ranges Company Facilities from 950 to 1000 sq.m AL Wasl Area 14.1 mn sq.m Limitless 2015 45 bn North of Riyadh Number of 55,000 housing Housing units General Housing Authority Page 131 BM & IR Project
Completion Value Area Project Name Description Owner Location Date (SAR) Units Mosques, offices, hotels Facilities malls, health & education facilities Area N.A Number of Abdul 300 Villas Rahman Housing 300 villas Diriyah, Complex in Saad Al 2010 187 mn Units Riyadh Riyadh Shopping outlet, Rashid & Facilities swimming pool Sons (Artar) and others Area N.A Number of Fares - Phase Al Yasmeen, Housing 120 villas Fares Al 1 2010 2,247 mn North of Units Saudi Pools, gardens Riyadh Facilities and external facilities Area N.A Number of New 300 residential Housing Economic Residential units Units Housing 2011 2,247 mn Riyadh Development Company in Riyadh residential units Facilities include villas & apartments Area 5 mn sq.m Number of Shams 3,200 residential Housing Dar Al Arkan Alriyadh units Al Dareiyah Units Real Estate Project - 2012 2,250 mn Province, Mosques, Development Residential Riyadh schools, Company Units - Phase 1 Facilities reasonable roads, green landscapes Area 5 mn sq.m Number of 5 villages, 8,000 Shams Housing Dar Al Arkan residential units Al Dareiyah Alriyadh Units Real Estate 2013 4,150 mn Province, Project - Mosques, Development Riyadh Master plan schools, Company Facilities reasonable roads, green landscapes Aknan - Area Aknan Integrated Number of Jeddah and Housing Construction 2013 11,235 mn Residential Riyadh Units Ccompany Developments Facilities Area 1,026,000 sq.m Number of Dar Al Arkan 3,800 Al Swaiyadi Housing Real Estate Al Qasr apartments 2008 1,500 mn Residential Units Development Area, Riyadh Schools, Company Facilities mosques and clinics Area 1.2 mn sq.m Naser Northern Number of Mohammad 600 housing Buraida Housing Al Mukairish Durrat Buraida units 2011 318 mn (Qasseem Units Real Estate area, North Investment Facilities Related facilities of Riyadh) Company
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Completion Value Area Project Name Description Owner Location Date (SAR) Western Area 9559 sq.m Province Number of 5 towers with Almasarat for Red Sea Al Masarat Housing 2oo apartments Units total Contracting 2009 936 mn Corniche, Towers Each apartment Co. LTD Jeddah Facilities with its own parking space Area N.A Number of Housing Al Haramain 2 1000 residential Housing Company for Residential units Units Development 2010 468 mn Jeddah Development- and Phase 1 Apartments and Facilities villas in different Investment sizes Area 300,000 sq.m Number of New 7 towers each 11 Al Rajhi Housing Residential storeys Banking & Units 2010 749 mn Mecca Complex in Investment Mecca Villa size ranges Corp. Facilities from 950 to 1000 sq.m Total of 2,560 Area sq.m Al Aqeeq Reyadat Taiba Number of Bani Najjar Real Estate Centre in Housing N.A 2010 150 mn district, Units Development Medina Medina Development Company Facilities located on 2 plots 50 storey tower Area with area of 85,600 sq.m Saudi Real Residential Number of Estate North Tower on Housing 88 apartments Units Development 2010 187 mn Jeddah North Jeddah Company Corniche Corniche 360 basement parking space, (SREDCO) Facilities swimming pools, health clubs and retail facilities Area 375,395 sq.m Umm Al-Khair Eewa Al Number of Residential 200 residential Derah for Housing 2010 326 mn Jeddah Project – units Real Estate Units Phase 2 Development Facilities Related facilities 388 m high Area residential building Diamond Number of 83 storeys with DAMAC Corniche Housing 300 residential 2011 500 mn Tower Holdings Jeddah Units units Storeys 1 10 Facilities have their own parking space Area 178m high tower Number of 40 storey Housing residential tower Al Jawharah Units DAMAC Corniche 2011 375 mn Tower Holdings Jeddah Facilities Multilevel car park, male & female swimming pools, General Housing Authority health club, Page 133 BM & IR Project
Completion Value Area Project Name Description Owner Location Date (SAR) sauna, steam room & jogging track Jeddah gates Area total area is 0.5 mn sq.m 3 towers with 19 King Jeddah Gate - Number of to 22 levels. EMAAR Abdullah Phase 1 - Al 2011 375 mn Housing Residential units Middle East Road, Hilal Towers Units varying from 124 Jeddah to 600 sq.m 5 basement Facilities levels parking, swimming pool Total of 209,000 Area Residential sq.m Project 1: Phase 1 Project under Number of 532 apartments Mubarak Al 2008, Rabegh, KAEC (Bay La 199 mn Housing in 4 residential Guthmi Phase 2 Jeddah Sun Village, Units towers Contracting 2010 Project 1 Parking space Facilities for 1,500 cars Total of Area Residential 29,000sq.m 1,000 Project under Number of Saudi apartments in 16 Rabegh, KAEC (Bay La Housing Binladin 2009 1.4 bn residential Jeddah Sun Village, Units Group towers Project 2 Parking space Facilities for 1,700 cars Total land area Area of 4.8 mn sq.m Number of Residential 30,000 housing Emaar Housing project under units Economic N.A N.A Medina Units KEC City Theme park, Facilities business centre, mosque Area 5 mn sq.m Number of 3,200 residential Shams Housing units Alriyadh Units Dar Al Arkan Al Dareiyah Project - Mosques, Real Estate 2012 2,250 mn Province, Residential schools, Development Riyadh City Units - Phase 1 Facilities reasonable Company roads, green landscapes Eastern Area 250,000 sq.m Province Number of 242 villas in 9 Housing residential Khobar Lakes - Emaar Units villages 2009 5 bn Al Khobar Phase 1 Mosques, Middle East shopping and Facilities community centres Area 30,000 sq.m Number of 5 storey Residential Housing buildings, 400 Almad Allah Development Units apartments Real Estate 2010 157 mn Al Khobar in Al Khobar Includes Group landscaping & Facilities infrastructure work Area N.A King 2011 315 mn Qassim Village General Housing Authority Page 134 BM & IR Project
Completion Value Area Project Name Description Owner Location Date (SAR) Number of Housing 100 housing Abdullah Bin Housing Developments units Abdulaziz in Qassim Units Foundation Schools, for Housing Facilities mosques and Development other facilities Area N.A King Number of Village 1,400 housing Abdullah Bin Housing Housing units Abdulaziz Units 2011 625 mn Najran Development Foundation in Najran Schools, for Housing Facilities mosques and Development other facilities Area 882,000 sq.m Number of 2,183 housing Housing units Saudi Maaden Units Arabian Residential Clubhouse, Mining 2011 1,873 mn Ras Al Zour Village mosque, Company administration Facilities (Maaden) building, swimming pool, football field Buildings built on Area 40,000 sq.m area Doha Gardens Number of Rikaz Doha sector, Project - Saudi Housing 188 apartments Development 2011 187 mn near Al Units Arabia & Planning Khobar Gardens and courtyards Facilities around the buildings Area 2,427,533 sq.m Number of Al- 2,770 housing Jazan, north Housing Muhamadiya units Tanmiyat of Jazan Units 2012 1,875 mn Development Group Economic in Jazan Trade centers, City Facilities banks and schools Area 7mn sq.m Al Shobily Khobar Al Shobily Port Number of Luxurious N.A 6,000 mn Housing residential Group Beach Front Units towers
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10.6 Major developments scheduled for completion – residential segment
Table 1
Source: Kuwait Financial Centre “Markaz” – June 2009
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Table 2
Completion Value Area (Sqm Project Name Type Developer date (USD bn) mn)
Al-Qasr Mixed use Dar Al Arkan Real Estate Development Company 2008 0.40
King Abdallah Economic City- Residential / Commercial Emaar, The Economic City 2010 0.12 55.00 Residential Districts Emaar – Al Ghadeer Village Mixed use Emaar Middle East 2010 0.60
Emaar – Al Nada Village Mixed use Emaar Middle East 2010 0.70 0.25
City Fanar Complex Mixed use Injaz Development Company 2010 0.20 0.30
Yanbu Residential Development Residential Royal Commission for Jubail & Yanbu 2010 0.10
Suwaidi Al-Qasr Mixed use Dar Al Arkan Real Estate Development Company 2010 0.08 0.82
Jeddah Mixed-Use Towers Mixed use KM Properties 2010 0.30
Sredco – North Jeddah Housing Residential Saudi Real Estate Development Company 2011 1.00 1.00 Development
Dar Al Arkan – Riyadh View Mixed use Dar Al Arkan Real Estate Development Company 2011 1.60 10.00
Olaya Towers Residential / Commercial General Organization for Social Insurance 2011 0.10
Al Muhamadiyah Mixed use Tanmiyat Group 2011 0.30 2.40
Andalusia Square Towers Mixed use Kinan International Real Estate Development Company 2012 0.56
Riyadh Marriland Leisure Park Tourism Grand Real Estate Projects 2012 0.30
Jeddah Riviera Mall Retail Al Ghazzawi Group 2012 0.30 0.10
SCT-Al-Aagir Tourism Development Tourism Supreme Commission for Tourism 2012 1.00
Riyadh Housing Project Residential Durrat Arriyadh Real Estate Development Company 2012 0.80 3.20
Jabal Khandama Area (Phase I) Residential / Tourism Jabal Khandama Development Company 2013 1.60 2.00
Total 10.06 Source: Markaz Real Estate Research, September 2008
Snapshot of Large Developers’ projects in Riyadh area (2008)
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Number of Cost (SR Expected N. Development Owner Location Land siz e Components units bn) Completion Residential units, shopping 1 Al Qasr Dar Al Arkan Al Suwaidi 813,000 ma ll, offices, schools and 3,071 3.5 2010 mosques
In proximity to the Prince Residential units, shopping 2 Durrat Al Riyadh Dallah Sultan City for 3,000,000 mall, five star hotel, schools 843 3 2009 (phase 1) Humanitarian Services and mosques
Al Malqa– Salboukh Residential units, shopping 3 Shams Al Riyadh Dar Al Arkan 5,500,000 5,000 5.0 2011 Road mall, schools and mosques
Residential units, sh opping Al Malqa– Salboukh mall, offices, schools, 4 Al Wasl Limitless Dubai 14,170,000 55,000 4.5 2020 (5 phases) Road mosques, university and a sports City
Al shoula Holding Residential units, two hotels, 5 Ajmaka Group and the Land Khozama 1,750,000 offices, schools and 1,470 6.0 2013 n KSA mosques Residential units, offices, Tameer Holding Al Malqa– Salboukh 6 Al Lawanda 2,270,000 schools, mosques and 4,500 n/a n/a Investments Road botanical gardens Residential unit, shopping Talaat Mustafa Group 7 Nesmat Al Rehab Al Thumama 3,000,000 mall, schools, mosques and 5,000 3.0 n/a (TMG Holding) health center
Al Malqa– Salboukh Residential units, shopping 8 Al Hakir Al Hakir 3,000,000 1,200 n/a n/a Road mall, schools and mosques
Prince Waleed Bin Residential units, shopping 9 Prince Waleed Bin East of Riyadh 19,495,459 25,110 66 n/a Talal Development mall, schools and mosques Talal Total 52,998,459 101,194 131.5
* Cost of construction land: 2,481 SAR/sqm **Cost per unit SAR 1.3m/unit Source: Riyadh News & Developer’s interviews
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Approximately 13,000 housing units were offered by some major developers between 2005-2007
Number of housing units delivered by major developers, 2005-2007
Developer Name Housing units
Dar Al Arkan Real Estate Development Company 2,781 Al Ali Real Estate 1,200
Tasweekar 250
Rekaz Development Company 1,000
Al Saedan Real Estate Company 1,200
Olaya Real Estate Company 800
Al Zekra Development Company 800
Al Somiei Company 400
Tmleek Company 700
Al Derea for Real Estate Development and Investment Company 500
Arriyadh Development Company 0
Urban Development Company 450
Emaar (including The Economic City) 0
Binladin Group 2,000
Total 12,081
10.7 Household Occupancy, by type and tenure
Table 1
Apartments Constitute only 37% of all housing Makkah and Riyadh have over 50% of total housing
NCB Capital – real estate sector, kingdom under construction, June 2008
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Table 2
Saudis prefer to live in large units (mainly private homes), while non Saudis live in smaller units (mainly apartments):
Table 3 – Housing units occupied by households, type and tenure of housing unit
Region Type of Appartment Villa Traditional Annexes* Other** Total ownership House 162,805 268,979 74,977 139,299 11,102 657,162
Owned 29,153 224,555 43,877 71,890 871 370,346
Riyadh Rented 124,547 30,305 20,487 64,851 2,539 242,729
Provided by 7,650 13,240 10,116 2,055 7,692 40,753 employer
Other 1,455 879 497 503 0 3,334
359,382 82,252 225,479 48,027 12,171 727,311
Owned 143,231 73,591 174,882 33,403 1,999 427,106
Makkah Rented 194,679 8,398 43,268 14,193 2,522 263,060
Provided by 15051 263 4,966 240 7,283 27,803 employer
Other 6,421 0 2,363 191 367 9,342
Madinah 105,716 20,652 72,672 10,007 9,714 218,761
Owned 458,56 18,188 56,185 7,508 4,059 131,796
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Region Type of Appartment Villa Traditional Annexes* Other** Total ownership House Rented 53,478 2,464 11,051 2,275 566 698,34
Provided by 2,201 0 4,987 0 5,089 12,277 employer
Other 4,181 0 449 224 0 4,854
13,105 54,976 33,466 18,440 1,731 121,718
Owned 5,566 44,253 31,308 7,577 0 88,704
Qassim Rented 6,800 10,489 1,679 7,862 0 26,830
Provided by 422 234 479 3,001 1,731 5,867 employer
Other 317 0 0 0 0 317
174,599 159,762 78,104 39,406 8004 459,875
Owned 32,746 134,800 54,975 26,211 258 248,990
Eastern Rented 121,419 16,909 17,067 11,198 4,381 170,911 Region Provided by 20,008 7,861 5,444 1997 3,428 38,738 employer
Other 426 192 618 0 0 1,236
46,255 54,989 100,440 34,527 9,452 245,663
Owned 14,443 53,027 83,204 23,157 1,274 175,105
Aseer Rented 31,259 1,962 9,933 11,370 0 54,524
Provided by 223 0 6,891 0 8,178 15,292 employer
Other 330 0 412 0 0 742
46,764 11,919 25,507 11,072 3,283 98,545
Owned 13,794 7,145 18,451 7,818 2,374 49,582
Tabouk Rented 30,618 3,869 6,460 2,841 732 44,520
Provided by 2,118 905 89 905 177 3,289 employer
Other 234 0 507 214 0 1,154
Hail 3,680 22,790 31,907 4,118 952 63,447
Owned 802 20,272 28,264 1,667 214 51,219
Rented 2,750 2,459 3,045 2,451 0 10,705
Provided by 128 0 0 0 738 866 employer
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Region Type of Appartment Villa Traditional Annexes* Other** Total ownership House Other 0 59 598 0 0 657
4,776 13,435 6,201 7,227 1,703 33,342
Owned 2,222 9,472 4,799 4,557 1,431 22,481
Northern Rented 2,499 2,833 1,173 2,593 237 9,335 Boarders Provided by 0 205 52 77 0 334 employer
Other 55 925 177 0 35 1,192
11,326 17,412 116,381 6,248 3,295 154,662
Owned 6,982 15,309 108,500 3,825 1,026 135,642
Jazan Rented 4,344 1,956 6,333 1,876 1,117 15,626
Provided by 0 0 411 547 1,152 2,110 employer
Other 0 147 1,137 0 0 1,284
14,707 8,974 20,215 6,952 1,633 52,481
Owned 5,847 7,144 18,596 4,893 1058 37,538
Najran Rented 8,564 1,274 1,482 2,059 224 13,603
Provided by 296 283 0 0 283 862 employer
Other 0 273 137 0 68 478
5,857 19,194 8,846 3,894 970 38,761
Owned 2,765 17,074 7,409 2,436 790 30,474
Al-Jouf Rented 2,841 1,926 1,086 1,303 89 7,245
Provided by 0 0 97 0 61 158 employer
Other 251 194 254 155 30 884
12,612 6,714 21,336 9,908 226 50,796
Owned 10,527 6,429 17,335 8,805 226 43,322
Al-Baha Rented 1,959 252 3,611 661 0 6,483
Provided by 63 33 208 86 0 390 employer
Other 63 0 182 356 0 601
Total 961,584 742,048 815,531 339,125 64,236 2,922,524
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Region Type of Appartment Villa Traditional Annexes* Other** Total ownership House Owned 313,934 631,259 647,785 203,747 15,580 1,812,305
Rented 585,757 85,096 126,675 125,533 12,344 935,405
Provided by 48,160 23,024 33,740 8,003 35,812 148,739 employer
Other 13,733 2,669 7,331 1,842 500 26,075
Source: Ministry of Economy & Planning
Table 4 – Housing units occupied with households, and individuals by type of housing unit
Region Type of Apartment Villa Traditional Annexes* Other** Total Housing House Riyadh Housing Units 368,504 280,541 124,053 163,078 84,409 1,020,585 Individuals 1,655,569 2,170,646 756,171 1,014,716 238,511 5,835,613 Individuals / Housing Unit 4.5 7.7 6.1 6.2 2.8 5.7 Mecca Housing Units 651,027 93,398 395,423 63,755 41,429 1,245,032 Individuals 3,039,778 632,127 2,007,701 347,814 69,657 6,097,077 Individuals / Housing Unit 4.6 6.7 5.1 5.4 1.6 4.8 Madinah Housing Units 144,129 21,154 90,140 11,616 15,244 282,283 Individuals 808,811 144,323 540,865 72,554 48,091 1,614,644 Individuals / Housing Unit 5.6 6.8 6.0 6.2 3.15 5.7 Qassim Housing Units 30,077 56,739 49,104 21,830 17,373 175,123 Individuals 147,961 464,999 308,049 118,962 37,097 1,077,068 Individuals / Housing Unit 4.9 8.1 6.2 5.4 2.1 6.15 East Region Housing Units 238,668 165,205 96,313 44,335 21,549 566,070 Individuals 1,155,032 1,274,698 618,721 384,458 112,735 3,545,644 Individuals / Housing Unit 4.8 7.7 6.4 8.6 5.2 6.2 Asir Housing Units 64,704 56,674 121,863 36,990 18,968 299,199 Individuals 334,300 442,602 692,091 246,745 40,887 1,756,625 Individuals / Housing Unit 5.1 7.8 5.6 6.6 2.1 5.8
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Tabouk Housing Units 55,118 12,023 37,700 12,667 6,558 124,066 Individuals 296,583 101,939 216,219 92,557 28,384 735,682 Individuals / Housing Unit 5.3 8.4 5.7 7.3 4.3 5.9 Hail Housing Units 7,894 23,259 40,564 4,617 2,837 79,171 Individuals 40,147 199,454 276,404 27,287 8,231 551,523 Individuals / Housing Unit 5.1 8.5 6.8 5.9 2.9 6.9 Northern Housing Units Boarders 6,904 13,976 7,685 7,574 2,724 38,863 Individuals 45,956 113,006 60,696 60,280 14,958 294,896 Individuals / Housing Unit 6.6 8.1 7.8 8 5.4 7.5 Jazan Housing Units 16,111 18,653 137,495 9,168 6,145 73,300 Individuals 103,765 137,290 925,911 51,893 27,754 449,186 Individuals / Housing Unit 6.4 7.3 6.7 5.6 4.5 6.1 Najran Housing Units 20,441 9,676 29,576 7,462 6,145 73,300 Individuals 105,340 72,881 191,953 51,258 27,754 449,186 Individuals / Housing Unit 5.1 7.5 6.4 6.8 4.5 6.1 Al-Baha Housing Units 19,761 6,714 27,509 10,476 2,670 67,130 Individuals 105,226 63,824 151,075 60,938 6,654 387,717 Individuals / Housing Unit 5.3 9.5 5.4 5.8 2.4 5.7 Al-Jouf Housing Units 10,173 20,108 12,738 4,071 2,915 50,005 Individuals 62,931 178,742 94,867 32,428 13,102 382,070 Individuals / Housing Unit 6.1 8.8 7.4 7.9 4.4 7.6 Total Housing Units 1,633,511 778,120 1,170,163 397,639 228,688 4,208,121 Individuals 7,901,399 5,996,531 6,840,723 2,561,890 680,291 23,980,834 Individuals / Housing Unit 4.8 7.7 5.8 6.4 2.9 5.6 Source: Ministry of Economy & Planning 2007
Table 5 – Recent Trends in Rentals
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Table 6 – On House Ownership versus Rentals
43% of total housing units in KSA are owned, while 51% are available on rental basis
Breakdown of occupied housing units by Saudi & Non - Saudi households, 2007 Total housing units occupied by expatriates households in 2007 estimated at 1, 285 , 597 units Employer representing 30 .5% out of total occupied housing Provided, 5.0% 5.2% Other, units 1.0% 9.0% 94 % of the occupied by expatriates households Other Units** were rented, while the remaining 6% are provided 39.0% Annexes* by employers Rented, Apartments 50.8% Owned, Among the owned housing units occupied by 18.0% Villas 43.0% Saudi households, the most common were Traditional Houses traditional houses (35 . 7 % ) and villas (34 . 8 % ) . As 28.0% Saudi families are quite large, there is a preference for such type of spacious accommodation. Type of units Apartments accounted for 17 . 3 % of owned housing units in the kingdom Breakdown of occupied housing units by Apartments and annexes are becoming more Saudi households, 2007 important with increased urbanization, and Employer changes in living habits and life - style . Many young Provided, married couples are preferring apartments, as 5.1% Other, 1.0% these are generally cheaper than villas and suit the 0.9% 11.2% urban lifestyle . Moreover, residential towers are 17.3% becoming a more common feature in major cities Rented, Other Units** 32.0% Annexes* 34.8% Apartments Owned, Villas 62.0% 35.7% Traditional Houses * Annexes: include duplexes, floor in villa or traditional house ** Other Units: mainly housing compounds Type of units occupied by For more details please check Appendix 1 owners Source: Ministry of Economy and Planning 2007; National Commercial Bank
General Housing Authority Page 145 BM & IR Project
General Overview of Saudi Banks’ Mortgage Products
Product Loan Down Min Monthly Bank Profit Rate Tenure Other Conditions Type Amount Payment Salary
5% (less than 15 yrs Manazil Saudi Nationals: SAR 4 25 yr Tenure) SAR 2,000 Home 4.75% Government, Private Mn Max 10% (over 15 SAR 5,000 finance and Bank employees. yrs Tenure)
Saudi Nationals: Manazil Land SAR 4 10 yr 4.75% 10% Not required Government, Private Finance Mn Max Saudi British and Bank employees. Bank
4.75% 5% (less than adjusted 25 yr 15 yrs SAR 3000 Saudi Nationals: Manazil every 2 SAR 4 Max 15 Tenure) individual/joi Government, Private Construction years Mn yr for 10% (over 15 nt and Bank employees. 5.5% for 5 land yrs years Tenure) SAR 5,000 20% (bank (individuals) Allows customers to Manazil SAR 4 25 Yr 3.5% employee) SAR 3,000 obtain cash against Refinancing Mn Max 30% (other) (each, their home value. for couples)
5%, 5 15 Housing yrs SAR 5 Murabaha or 5%, 11 20 yrs SAR 5,000 6.5%, 15 mn 30 yrs Ijara Home must be less Riyad Bank 20 yrs than 20 yrs old. Saudi nationals only: Joint ownership Land 4.25 %, re possible SAR 3 Murabaha or evaluated 15 yrs 5% SAR 4,000 mn Ijara every 2 yrs.
4.5%, 2 15 Home yrs SAR 1 25 years 10% SAR 5,000 Arab National Financing 4.75%, 15 mn Bank 25 yrs Salary must be transferred to ANB. Local Al 3.25% SAR 1 60 SAR 1,750 Tawaruq Al 10% 4.25% Million Months SAR 2,500 Mubarak
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Product Loan Down Min Monthly Bank Profit Rate Tenure Other Conditions Type Amount Payment Salary
SAR 5,000, Must be employed for Bait El Khair Individuals one year home 4.75% SAR 4,000 Saudi Joint ownership financing 10% for homes joint American Bank possible. above SAR ownership. SAR 25 yrs 700,000, 5mn otherwise no down payment.
At least equal to Al Khair double Furnished villas or 4.75% Mortgage required apartments only. monthly installment.
Saudi Nationals only. Murabaha 54 5% 15 yrs 0% possible SAR 2,000 Requires current Program salaries account with bank.
5.25% for SAR 6 month 1mn – No Down Saudi Nationals only. Irad Program installments 10 yrs None SAR Payment Targeted at investors. 5.75% 5mn Al Rajhi Bank annual
Musharaka Rent to Own 10% NA 25 yrs 0% possible SAR 2,000 Saudi Nationals only. Program
5 yrs 3.5% 10 yrs Saudi Nationals only. 4.25% No Down Istisnaa NA 20 yrs SAR 2,000 Specific for home 15 yrs payment construction. 4.5% 20 yrs 5%
4.75% to be Land or house must Residential re SAR 3 be less than 10 years 30 YRS. 10% SAR 5,000 National Finance evaluated Mn old. Commercial every 2 yrs Must be Saudi citizen Bank
4.75% to be Must be citizen of Tayseer re SAR 1.5 30 YRS. 10% SAR 5,000 Saudi Arabia or a AlAhli evaluated Mn legal resident. every 2 yrs
Banque Saudi At least one year of Sakan Fransi employment. Murabaha SAR 1.5 4.35 % 17 yrs 10% SAR 5,000 Saudi nationals only; Home mn joint ownership Financing possible
General Housing Authority Page 147 BM & IR Project
Product Loan Down Min Monthly Bank Profit Rate Tenure Other Conditions Type Amount Payment Salary
Sakan Murabaha 15% Land Financing
Saudi Morabaha Investment Finance SAR 1 3.5 % 5 yrs None SAR 3,500 Bank (personal Mn At least 2 years of finance) employment Saudi nationals only joint ownership possible Ijara Finance To Be Launched
Bank Al Bilad Murabaha Customers must be at SAR Finance SAR least 21 years old. 4.49% 15 yrs None 5,00 (personal 537,595 Requires current 0 finance) account with bank.
High level profile of the real estate finance companies in KSA
Loan Down Min Monthly Other Company Product Profit Rate Tenure Amount Payment Salary Conditions 10% Residential Murabaha (government homes and land 7.15% flat SAR 1.5 Saudi nationals Facility 15 yrs sector) SAR 6,500 for mn only. Joint 20 25% apartments, 8,000 ownership (private) for villas. Joint possible, with applicants wife’s minimum 10% combined salaries 5.5% capped (government salary of SAR Ijara facility accepted rate. Adjusted SAR 3 mn 25 yrs sector) 5,000 per month
every 6 mths 20 25% Minimum age of applicants, 21 (private) Amlak yrs old International Istisnaa To be launched
Corporate On a case by case basis
General Housing Authority Page 148 BM & IR Project
Open to employed Saudi nationals only Joint applicants Maskan SAR accepted, SAR Mubarak 8% 12 months SAR 105,000 5,000/mth with 420,000 Osool Modern maximum loan amount SAR 1.4 mn Property purchased should be less than 10 years old If tenure is shortened , SAR loan amount 660,000 Home will be less (based on a Financing 4.95%1 flat 25 years 15% SAR 5,000 May pay off SAR 10,000 (Ijara contract) loans earlier monthly than the salary) maximum tenure
Considering Istisnaa contracts – allowing customers to purchase units off plan – by making periodic Saudi Home Istisna payments to developer on behalf of customer. This product is being offered on a case by case basis Loans and on condition that the land is already owned by the developer / customer.
Other products To be launched in parallel with the passing of the new mortgage laws
10.8 Developers in the Private Sector
The following is a brief description of the major developers in the kingdom:
Dar Al Arkan Real Estate Development Company
Company Overview
Dar Al Arkan Real Estate Development Company is a privately owned Real Estate development and investment company which was established in 1994 with a paid up capital of SAR 5.4 billion. Dar Al Arkan also engages in the construction of commercial and residential properties. The company has branches in Medina, Mecca, Yanbu, Khobar and Jeddah with a workforce exceeding 500 employees.
General Housing Authority Page 149 BM & IR Project
The company aims to construct 65,000 residential units by 2009 . Main Projects
Al Riyadh View: consists of 8,000 housing units Al Qasr (under construction): consists of 4,000 housing units (254 villas and 131 residential and commercial buildings) Eshbiliah (under construction): contains 420 villas Al Rabie: consists of 264 housing units Al Falah: consists of 48 housing units Al Taawon: consists of 44 housing units Al Yarmouk: consists of 104 housing units Al Mounsiah: consists of 82 housing units Al Abrar: consists of 520 housing units divided on 7 towers Al Mashaer Towers (under construction): consists of 338 housing units divided on 7 towers Al Awaly: contains 16 villas Golden Coast (under construction): consists of 168 housing units , Al Manar: contains 16 villas Al Tilal (under construction): contains more than 500 housing units Al Nour: consists of 105 detached and duplex villas Source : Dar Al Arkan; Deloitte Research and Analysis
Arriyadh Development Company
Company Overview
Arriyadh Development Company (Arriyadh) is a Saudi Joint Stock company established in 1994 with a paid up capital of SAR 1 billion. Its main business activities include – constructing, investing and managing developmental projects that include commercial, residential and services, such as public parks, office and commercial buildings.
Main Projects Al-Tameer Commercial Center : it is one of the prominent projects of Riyadh Tameer Co. The center contains various other buildings like the gold market, mobile phone market, women market, Galleria Mall, restaurants, recreational center, offices, residential apartments, car parking, a branch for Arab Bank, STC service office etc. Batha Meat and Vegetable Market : Being one of the earliest projects that have been brought in existence by the Company. Riyadh Wholesale and Retail Market : It is regarded as one of the most modern projects that have recently been inaugurated by Arriyadh Development Company.
General Housing Authority Page 150 BM & IR Project
Public Transportation Center Riyadh Vegetable & Fruits Wholesales Market Sunrise Cities : currently it is under development. Sunrise will contain typical housing area, villas, trading areas, markets, offices, Parks, and Social Club. Technical Service City : It contains small scales industries shops and cars workshops that work side by side with the project of Arriyadh International Auto Auction. Riyadh Hills - Telal Arriyadh : currently it is under development. It is divided to four basic areas with determining only four entrance to the area. The commercial business located in four locations on the corners of the area. Riyadh International Car Auction : currently it is under development. It is considered a revolutionary in used car selling in the area, it is not only the first auction of its type in Saudi Arabia but also in the whole Middle East area . Source : Arriyadh Development Company; Deloitte Research and Analysis
Makkah Construction & Development Company (MCDC)
Company Overview
Makkah Construction & Development Company (MCDC) is a Saudi Joint Stock company established in 1989, with a paid up capital of SAR1.4 million. Its main business activities include – construction, real estate proprietorship, development and investment, property and hotel management with focus area around the Holy Haram in Mecca. Main Projects
Mecca Hilton and Towers : the structure consists of the 1,400 room Mecca Hilton Hotel, which is managed by Hilton Hotels group, in addition to the three storey 451 unit Mecca shopping center. In 2006, MCDC was a founding member (with 21% stake) of the Jabal Omar Development Company that was established with a capital of SAR6.7 billion. Spread over an area of 230 sq.km, the project includes hotels, commercial centers and prayer facilities that can accommodate over 200,000 people. Source: Deloitte Research and Analysis
Saudi Real Estate Company (Akaria)
Company Overview
Saudi Real Estate Company (Akaria) is a Saudi Joint Stock company established in 1976 with a capital of SAR600 million.
General Housing Authority Page 151 BM & IR Project
Its main business activities include – Real Estate management (commercial & residential), acquisition, hiring of land and related construction and maintenance activities. Main Projects
Akaria will join other eight companies and individual investors in setting up a SAR 1 billion tourism firm called Al Thumama For Touristic Development Company. According to the head of the founding committee for the new firm, the nine founding members are: Public Pension Agency, General Organization for Social Insurance, Al Taameer Company, Al Hokair Co., Mohammad Al Mojil Group, the Saudi Real Estate Company, the Saudi Hotels and Resort Co., Hamad M Bin Saedan Group and Al Mutawa Sons Co. The new firm will develop Al Thumama park that’s expected to attract SAR2.5bn in investment and will create 3,000 jobs. In December 2007, the company announced plans to set up a SAR 1 billion property finance firm in Saudi Arabia. Akaria will own 10% of the new firm for which it signed a deal with undisclosed investors Source: Deloitte Research and Analysis
Taiba Holding Company (TIRECO)
Company Overview
Taiba Holding Company (Taiba) is a Saudi Joint Stock company established in 1988, with an authorized capital of SAR 3 billion and a subscribed capital of SAR750 million. The company was established as Taiba Investment and Real Estate Company, until it converted to a holding status and changed its name in May 2007. Taiba’s main business activities include – ownership, management and investment in real estate property, hotels and resorts. The company’s activities also include general contracting in the field of operation, maintenance, construction and electromechanical works in addition to projects in industrial, architectural and mining sectors. Upon transforming to a holding company, Taiba transferred its real estate activities to Al Aqeeq for Real Estate Development and increased its capital from SAR300 million to SAR3 billion. Taiba also announced that it plans to list Al Aqeeq’s shares. In January 2008, the company announced plans to take a 10% stake in Saudi Makamin Company for Oil and Gas Services worth SAR120 million. Taiba will acquire 12 million shares in Makamin, which is under formation in Saudi Arabia with a capital of SAR1.2 billion.
Main Projects
Eastern Tower : the company’s first and biggest project. It is a 5,800 sq.m residential and commercial centre located in the central area surrounding the Holy Prophet’s mosque in Medina. The Project comprises of 20 floors, 13 of them are residential containing 360 apartments, the commercial center is located in four floors containing 300 shops. Taiba Residential and Commercial Center-Western Tower : it is the second of Taiba’s projects. It has been built on a plot having an area of 3,000 sq.m facing the northern plaza of the Prophet’s Holy Mosque. A link bridge connects the project with the Eastern Tower.
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Al-Aqeeq Center : it is the third of Taiba’s projects. It has been built on a 2,300 sq.m area and within 90 meters distance from the Prophet’s Holy Mosque. Source: Deloitte Research and Analysis
EMAAR THE ECONOMIC CITY (EEC)
Company Overview
Emaar The Economic City (EEC) is a Saudi joint stock company established in May 2006 by Emaar properties and a number of Saudi investors with a paid up capital of SAR8.5 billion. In July 2006, the company underwent an IPO offering 30% of its shares on the Saudi Stock Exchange. EEC’s main activity is the development of King Abdullah Economic City (KAEC), which is located on the Red Sea in the north of Jeddah. Construction began in December 2005 and Phase 1 is expected to be completed within 2 to 3 years. Main Projects King Abdullah Economic City (KAEC): is one of the largest private projects in Saudi Arabia with a total cost of SAR100 billion and a total area of 50million sq.m , the project is expected to create 500,000 jobs. KAEC includes six components which are the Sea Port, Industrial District, Resorts area, Financial Island, Education Zone, and Residential area. EEC and Emirates Aluminum (Emal, a joint venture between Mubadala Development Company and Dubai Aluminum Company – Dubal), signed a memorandum of understanding (MOU) to establish a greenfield aluminum smelter complex at KAEC. The project will have an initial investment of SAR18.4 billion. The first phase of the smelter will start operations in 2010 at a capacity of 700,000 tons/year, and upon completion of all phases capacity will climb to 1.4 million tons/year, making it the largest in the world. Work on the project is expected to start by the end of 2008 upon completion of project studies and environmental assessment. KAEC has awarded a developmental contract worth SAR115.0 million to Saudi Arabia based Cemcco for undertaking the infrastructural work within the mega project’s Industrial Zone. The contract covers the utilities work over 1.58 million sq.m of land. Cemcco will undertake the construction of two sewage pumping stations, irrigation tanks and pump rooms, electrical substation, a potable water network, irrigation and firewater network, MV power cable network and street lighting, sewage network, water storm channel network, telecommunication ducts and roads. Source: Emaar The Economic City; Deloitte Research and Analysis
General Housing Authority Page 153 BM & IR Project
Profiling the mainstream medium to medium-large sized real estate developing/investing companies
Region Group Profiling Dar Alarkan (mentioned under real estate developers section) Al Ali Real Estate Company Abdulrahman Saad Al Rashed Central Region (Riyadh) Al Bayt for Development Al Saedan for Real Estate Development Al Mousa
Western Region Emaar (Jeddah) Al Mabani
Al - Oula Real Estate Development Company Injaz Eastern Region (Dammam/Khobar) Jenan Al - Mada
Our research has also identified some of the major middle sized developing companies:
Al Bayt (Real Estate) Development Company
Company Overview
Paid Up Capital of SAR 400,000,000 (raised from 100million in 2006). Specialized with medium to high level commercial buildings within Riyadh’s Business Central District (BCD) such as Olaya main road. Specialized also in middle range housing units, where they managed to develop over 1,000 units since their inspection in 2003. Main Projects Al Bayt 3: Project of 116 housing units in Al Waha neighborhood (Riyadh). Al Bayt 8: Project of 230 apartments in West Nakheel neighborhood (Riyadh) over an area of 20,000sq.m. Al Bayt 15: Project of 161 apartments (94, 125, and 134 sq.m) in Al Nada neighborhood (Riyadh). Tower: Under construction near the Ministry of Interior on Olaya Road (Riyadh)
General Housing Authority Page 154 BM & IR Project
Urban Development Company
Company Overview
The Urban Development Company is considered as one of the leading developers of real estate in Jeddah, specializing in towers (residential and commercial ) as well as business parks.
Main Projects
Burj Al-Jiwar: Developed in Mecca as residential tower that will include 210 residential units with varying areas ranging between 33 and 120 sq.m. Al-Beautat Business Park: The park was constructed as luxury villas specified for commercial offices, the park is located at the cross of Al Malek Road with Sari Street. The park includes 40 office units, where areas of offices starts from 500 sq.m and each office is comprised of 3 floors. Furthermore, services and facilities offered to tenants include separate parking lot for each villas in the ground floor of the villas, staff parking lots, 60 cabled satellite channels for each villa, private gardens, an executive health club, business center, security services, and computer networks. AL-Beautat 1 Compound: located The Compound includes 65 villas with built up areas ranges between 530 and 900 sq.m. Different types of villas were developed with 5 to 7 bedrooms, each villa has its own pool and garden. Furthermore, villas are equipped with all necessary home appliances and telephone switching system, each villa has a laundry room, parking lots for two cars, driver room, and a made area. Additionally villas with more than 5 bedrooms will their own sauna and jacuzzi. Diyar Al-Bahr Tower: the 30 floors tower will be located adjacent to the beach on Corniche road and will consist of five connected towers, each floor will consist of two apartment. A standard apartment are designed with a built area of 100 sq.m and includes a dinning room, bed room, 2 bathrooms, a kitchen equipped with all necessary electrical appliances, and two balconies of which one of them enjoys a sea view. Additionally, apartments with larger areas are available as with areas of 100 527 sq.m.
Real Estate Investment & Development Co. L.L.C. (Al Mada)
Company Overview
Al Mada operates in the field of residential real estate investments. The Company’s mission is focused on providing middle income families with private residential properties. The Company ensures that it utilizes high standards of construction material and engineering supervision, as well as providing free maintenance for one year and consultation services for clients. Main Projects Al Muntazah Villas
General Housing Authority Page 155 BM & IR Project
Peer Group Profile: Al-Oula Real Estate Development Company
Company Overview
A Saudi prime real estate company operates all over Saudi Arabia, particularly in residential market. On top of these projects is the Al Oula Towers (Abraj Al Oula) at the Corniche of Al Khobar city, at a center of a busy area of Al Khobar, occupying an area of 98,000 sq.m. The project allows investment in building towers up to 16 floors.
Main Projects Oula Al Shatee is situated in Jeddah with a location directly overlooking the Arabian Gulf waters and is spread across 15,000 sq.m. Ajyal Project is a unique real estate housing investment, spread across 983,845 sq.m of land, located beside Abqaiq Road. Al Zumurd is situated near the charming Al Khobar and Al Qusaibi chalets. The project is situated on a land area of 604,075 square meters. Al Diyar is located at the meeting point of three main roads, Al Khobar/Abipaq, Abu Hadriya/Dammarn and Abipaq / Dammam/Al Khobar which leads to the Kingdom of Bahrain and other GCC states. Al-Thuraya links Al Khobar and Dammam with various cities of the Eastern province. The project is situated on a land area of 87,806 sq.m. The available plot of land ranges between 110 and 650 sq.m, the location and size of the project are considered excellent and attractive. In partnership with Emaar Properties launched the US$ 11.2 billion (SAR 42 billion) Jeddah Hills residential and commercial project, in 2006. The 22.8 million square meter (246 million square foot) project will be comprised of 20,000 townhouses, villas and 24 residential villages with retail hubs, expected to go on sale by the close of 2007
Al-Ali Real Estate Co.
Company Overview
Al Ali is a member in Al Ali Holding Group, and had been established for around 15 years. Al Ali develop, construct, and market’s real estate projects. The sister Company Al Ali Tameer builds and Al Ali Real Estate markets it, which successfully sold over 2000 residential units in Riyadh, in addition to constructing 63 million sq.m of land (until 2006 alone). Furthermore, totals assets of the company reached SAR 2.5 billion distributed among residential and commercial projects, and land investments.
Main Projects
General Housing Authority Page 156 BM & IR Project
Sindad City Project: Is a mixed use project located in Riyadh, with more than 550 residential units distributed on a land area of 375,000 sq.m. The project also includes 2 mosques, and a mall on a land of 17,274 sq.m. Forsan’s Project: Is a residential project located in Riyadh, with more than 113 residential units distributed on a land area of 38,000 sq.m. Villa areas are between 240 600 sq.m with 51 different front designs. Residential Projects: Al Ali Villas Project; Al Sulimanieh Villas Project; Al Nafl Villas Project (Two phases); Ghernata Project; Al Masiaf Villas Project; Qurtoba Residential Project Land Projects: Al Sulimanieh lands (Opposite to Al Jazeera markets)
General Housing Authority Page 157 BM & IR Project