OPINION | Saudi Housing Requirements for a Strong and Secure Future

"The Saudi housing market is primed and ready to go for major investments." - Dr. Theodore Karasik

By Dr. Theodore Karasik

Senior Advisor at Gulf State Analytics

Image Attribute: Riyadh, Saudi Arabia, image by Peter Dowley via Creative Commons

Vision 2030 calls for addressing housing issues, a primary requirement in today’s Saudi Arabia. Providing more Saudis with the security of owning a home is an aim of Vision 2030. Yet currently there are not enough affordable homes to satisfy demand. To boot, there are thousands of undeveloped sites in urban areas. Up to half the space in Riyadh, Jeddah, and Dammam is untapped. Investment opportunities abound now that the Kingdom has made key changes in Saudi Arabia’s housing market.

The shortage of housing in Saudi Arabia is a social and a security issue. Forty-seven percent of Saudis own their homes. There is a shortfall of 100,000 to 200,000 homes each year. Almost a third of Saudis are under the age of 15 and more than half are under 25, so keeping up a steady flow of affordable housing is a demographic battle that only grows increasingly challenging over time. Ultimately, the housing program aims to contribute to an improving lifestyle in the Kingdom, especially for the Kingdom’s current and future generations.

Enter Deputy Crown Prince Mohammed bin Salman (MbS). Under MbS’ Council of Economic Affairs and Development (CEDA), a robust housing building and purchase program are now available to Saudis after two years of planning and development. Real estate is one of the main drivers of Saudi Vision 2030. Importantly, the housing program aims to provide a dignified life for Saudi families by enabling them to own houses that match their needs and financial capabilities.

Saudi Housing Minister Majed al-Hogail is a major influencer and innovator in the new Saudi housing program. Al-Hogail, who comes from the Saudi real estate sector, argues that Saudi Arabia has a waiting list for 1.5 million housing units over the next five years and plans to deliver one million units to satisfy demand and backlog. Al-Hogail’s path to this point required a restructuring in the Ministry of Housing (MoH), reforming and streamlining the bureaucracy to operate in a new and productive way through transparency. He wants the MoH to be a model of transparency for foreign investors. The higher involvement of the private sector and foreign investments worth 100 billion dollars of opportunity lies in the Saudi housing market.

Clearly, the key strategic objectives of the Saudi housing plan are to increase productivity and efficiency in the housing construction sector, make the sector increasingly reliant on local content in line with Saudization, and ultimately transform the country, strategically located at the intersection of Africa, Asia, and Europe, into a global hub for construction innovation. MoH is looking to cutting edge technology, public-private partnerships (PPPs), and operating models to better target regional and international markets by using technology-led housing delivery that can serve as a model for speedy construction. PPP facilitation is a critical part of the MoH’s operating model that seeks to leverage new technologies that can speed up housing requirements.

Observers should be aware that Saudi Arabia is restructuring how the Kingdom’s real estate market works to achieve housing goals. Fostering a balanced and sustainable housing environment within the Kingdom of Saudi Arabia fits into Vision 2030. However, there are factors which have hindered further success in this area which sat on the demand, supply, and regulation sides. In terms of demand, the issues were housing fund volumes, plus an inadequate number of refund companies, innovative fund products, and loan guarantees. Regarding supply, the hindrances included limited numbers of supplied housing units for social classes and local real estate developers. With respect to regulation, the Kingdom’s official organizations responsible for regulating this sector of the economy coordinated between each other quite poorly. There was also a lack of regulations on the books which are necessary for developing this sector, particularly regarding multi-owned building associations and rent.

But recently the Saudis have made numerous achievements in all three areas, increasing the supply of developed land, the number of housing units ready for delivery, and the number of agreements signed with local and international developers to grow the housing sector. The Kingdom also increased the beneficiaries of the real estate development fund as well as starting the Al-Moyassar Home Mortgage Program, which is a project financed by the MoH via the Real Estate Development Fund with the purpose of reducing the advancement payment for eligible finance support.

On the regulatory front, last year there were 16 new regulations and laws put on the books. Also, in 2015 the Saudis established the National Housing Company (NHS), which is a government holding company that serves as the MoH’s investment arm. NHC wholly owns four to six subsidiaries which will be tasked with operating and implementing the ministry’s plans pertaining to the National Transformation Program and Vision 2030. The newly implemented laws pertain to Saudi Real Estate, also known as Al Akaria (a state-backed real estate developer founded in the 1970s which are majority-owned by Public Investment Fund), the regulatory lease sector, owners’ association rights, plan land fees, and population density regulations.

In February 2017, the MoH launched the SAKANI program. This ambitious housing program aims to allot Saudi Arabia’s “most deserving citizens” 120,000 housing units this year as part of the MoH’s plans to allot 280,000 housing units. With support from local banks and financial institutions, the Real Estate Development Fund financing the first batch of the SAKANI program which includes roughly 16,000 housing units and caters to Saudis of different incomes across different parts of the country.

The Saudi housing market is primed and ready to go for major investments. Systemically, the MoH plan is sound and ready to provide the social security that all Saudi citizens are seeking. Informed sources say that US Department of Housing Ben Carlson is impressed with al-Hogail and the Saudi housing program to include bilateral housing partnerships. The international business community, which specializes in technology, innovation, and construction, should seize the moment.

International Policy Digest originally published this article on June 9, 2017. Republished at IndraStra.com with authors' permission

About the Author:

Dr. Theodore Karasik is the Senior Advisor at Gulf State Analytics. He tweets at @TKarasik