Saudi developers focus on affordable housing sector

19 April 2012
JEDDAH - Majority of the developers in Saudi Arabia are focusing more on the affordable housing segment for lower and middle-income classes than on luxury villas and higher-end housing schemes, a new research report by RNCOS said. The housing demand in the country is projected to reach around 0.33 million units by the end of 2014.

The report, "Saudi Arabia Housing Sector Outlook", said Saudi Arabia is thriving with new mega project developments. Small-sized players, who are developing standalone properties of average value under $50 billion, rule the supply of residential properties, while large-scale residential projects are dominated by mega cities. Viewing the long-term property demand in the country, innovative residential development projects are now ongoing in North Riyadh and Jeddah. These projects are mostly divided into commercial, industrial and residential units, tourism spots and shopping malls, with the majority part occupied by residential development plans resulting into an immense growth in the sector.

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 is enacted in the country's legislature, the report added.

The Saudi Arabian housing industry has come up as the one of the most vibrant segment of the real-estate industry. Despite the 2009 economic turmoil, the Saudi housing industry witnessed remarkable growth opportunities and became one of the fastest growing housing industries in the Middle-East region. The housing industry in Saudi Arabia has also seen remarkable growth in the past due to the emergence of a number of real-estate developers, the growing demand for real-estate finance, and residential property, the report said.

Over a period of time, young population-base, government funding, and booming economy, together with other secondary factors have led to provide the preferred platform for the housing industry to develop new horizons.

A separate study noted that selling prices of ready to move in residential units and land continued their upward move during 2011 in both Riyadh and Jeddah driven by stringent supply shortage coupled with affordability constraints. Villa and apartment prices increased by 8-10 percent on average in Riyadh while Jeddah witnessed a more aggressive increase of 13-15 percent.

Rental yields expanded in Riyadh versus a year earlier to 8.4 percent up from 7.9 percent for villas and 7.8 percent from 7.4 percent for 2-bedroom apartments. In Jeddah, yields contracted to 8.8 percent for villas from 9.1 percent in 4Q10 while those for 2-bedroom apartments shrank from 11.5 percent to 10.8 percent as property prices increase faster than rent, which indicates potential for further rent appreciation in 2012.

Selling prices and rentals are expected to maintain their upward move given the persistent supply shortage of affordable units along with the country's young and growing population. The increase in the REDF loan from SR300,000 to SR500,000 and the added flexibility that allows utilizing the full loan amount to purchase ready units will stimulate demand for residential apartments.

© The Saudi Gazette 2012


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