Entrepreneurship in the Kingdom of Saudi Arabia

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Saudi Arabian real estate sector is all set for exponential growth

 

08 Aug 2011

Engineer Fahed Bin Mohammad Al Moutawe, CEO of Ewaan Global Residential Company.

Engineer Fahed Bin Mohammad Al Moutawe, CEO of Ewaan Global Residential Company.

Construction industry in the Kingdom on sound foundation and on the verge of major surge, says top industry player
The Saudi Arabia real estate industry is poised for remarkable growth in the near future and is currently the fastest growing construction industry across the Middle East. What with more than $36bn of FDI and over $500bn of real estate projects already under way, the Kingdom of Saudi Arabia presents one of the most lucrative opportunities to tap into for regional and international real estate investors.

The recent spate of developments in the Saudi Arabian real estate sector are fueled by a robust economy of the Kingdom, and backed by huge revenues from the oil sector leading to excess liquidity. More importantly, one of the major boost to the sector is the liberalization of property laws within the Kingdom.

As per industry expectations, the real estate sector’s annual growth is expected to be maintained between 2011 and 2015 along the same rate. For its part, the Saudi Arabian government has helped the cycle of growth through diversification. This has helped in generating credit facilities and real estate investments, leading to more construction and ultimately the demand has led to a huge growth in the real estate sector.

One of the main drivers of the real estate market surge is the size and rapid growth of population in the Kingdom. Saudi Arabia has been among the fastest growing countries globally in terms of population over the past decade. As a result, Saudi has a very young demographic profile, with around 45% of the population currently aged around 20-25 years. This young age profile and the rapid urbanization have been the major demographic factors driving the real estate market.

Comparatively speaking, Saudi Arabia has the largest real estate market in the GCC states, with more commercial (office, retail and residential) floor space than all of the other GCC countries put together. The current stock of commercial space is planned to increase manifold with the residential sector also poised for significant growth.

Talking of the huge demand for residential units, several businessmen and real estate investors have moved to buy plots of lands to build residential apartments. This has also prompted several real estate investors and businessmen to join hands in building apartment blocks and sell flats under a lease program ending in ownership.

There has already been a boom in the real estate sector following the recent Royal Decree issued by His Highness King Abdullah Bin Abdulaziz, Custodian of the Two Holy Mosques to increase the limit for personal loans from the General Housing Authority and the Real Estate Development Fund from SR300,000 to SR500,000.

Although the Kingdom is witnessing huge developments in the construction sector, the housing market still suffers from a large demand-supply gap due to the rapid expansion of the expatriate community along with the domestic community and rapidly declining household sizes.

“The Saudi housing market offers enormous potential for growth as it unlocks its potential. Housing is primarily driven by domestic drivers of demand. Young Saudis are in search of affordable housing throughout the country which remains under-supplied. However important steps are taken by the government to address supply mismatches,” said Engineer Fahed Bin Mohammad Al Moutawe, CEO of Ewaan Global Residential Company, the leading real estate development company in the Kingdom of Saudi Arabia which is constructing the Alfareeda Residential Project currently being build in the north of Jeddah city.

 

Under the new Saudi Arabian Law, foreigners are now entitled to allow a 100 per cent ownership of real estate properties in the Kingdom. This allows for a more influx of funds and investment into the country and helps further the development of real estate industry in the country.

Moreover, the majority of the Kingdom’s populace does not have their own houses and live in rented accommodation. As a result, Saudi Arabia will need to construct over 1 million houses by 2014. This demand could further escalate if the mortgage law to ensure easy financing gets its final approval.

 

“The mortgage condition will certainly be key to prospective market growth. With this mortgage law, prospective buyers will be integrated in the target market and consequently, the potential of the residential real estate will get bigger in Saudi Arabia. This will on the contrary change the decreasing investment trend seen during the past decade. Particularly, Jeddah and Makkah are likely to record much higher growth levels than the other cities of the Kingdom, largely because of the current pent-up demand,” added Engineer Fahed Bin Mohammad Al Moutawe.

With the growing needs of a young population, the housing market in Saudi Arabia has shifted its focus from palaces and luxury villas to the needs of a changing society. With a population of more than 27 million, the Kingdom is notably the most populated country in the Gulf. Demand for housing surpasses the supply and in the coming years, demand for affordable housing will go on outstripping for luxury villas as the majority of the population have enough money for housing units in the range of SR0.8 million and SR3.5 million.

Over all, the real estate scenario in Saudi Arabia is looking great, with lots or promises especially in the next few years. As this upbeat prediction remains, expect Saudi Arabia to be the bastion of real estate development.

 

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