Reuters is reporting that last week’s Royal Decree to tackle Saudi Arabia’s housing program has removed “an obstacle to a $67 billion program to ease the country’s housing shortage,” which “may push the program forward by opening up thousands of acres of state-owned land for construction.”
An under-construction housing development in Saudi Arabia. Photo by Lucien Zeigler for SUSTG.org
Martin Dokoupil and Marwa Rashad write that King Abdullah’s housing program “has been slow to get underway, partly because of difficulties in obtaining land – an example of how inefficiencies in Saudi Arabia’s economy can slow its growth, despite its oil wealth.”
The decree calls for the Ministry of Municipal and Rural Affairs to turn over municipal land to the Ministry of Housing which will develop infrastructure such as roads on the properties before distributing them to citizens.
Quoting John Sfakianakis, who is a former chief economist at Banque Saudi Fransi and is now chief investment strategist at MASIC, “The decree is an important step that begins to address the gap between demand and supply of land in order to begin building the amount of units promised…It should eventually, as more allocations become available to the ministry of housing, bring down the price of land.”
Saudi Arabia “issued final regulations on real estate financing, leasing and the supervision of financial companies as the kingdom tries to ease a housing shortage by opening up its mortgage market and enacting the first home-loans law” in late February of 2013, according to Bloomberg.
“Compared to its fellow Gulf Cooperation Council states (GCC), Saudi Arabia’s housing market is the least developed. Only about 3.5% of all home purchases are financed through a mortgage. This number is 17% in the UAE and, by example, 70% in the UK and USA. Despite the fact that home loans do exist in Saudi Arabia, where banks deduct a fraction from the loan holder salary each month, banks have been very conservative in mortgage lending. The majority of mortgages in Saudi Arabia are provided by the state’s Real Estate Development Fund, which offers interest- free loans to low-income buyers,” Hussein Abusaaq wrote for SUSTG.org in September 2012.
Analysts put the existing shortfall of housing at an estimated 500,000 homes. By 2015, that shortage is estimated to be at 1.65 million homes. In 2011 the Saudi Government earmarked SR 250 billion ($66.7b) to build homes across the Kingdom. Over the next eight years Saudi Arabia is expected to commit nearly SR1.3 trillion ($350b) into projects to build new housing.
According to Banque Saudi Fransi 17% of Saudi households would be “potential mortgage seekers,” possibly translating into an estimated $20 billion of accretive value to the overall banking sector. In 10 years, the bank believes the mortgage sector could amount to as much as $241 billion or 23% of GDP.
