Actual demand for housing in the Kingdom is huge and the supply doesn't meet the demand. "Saudi Arabia is a major player in the region both in political and economical terms; today the government is spending billions of dollars in infrastructure development, which is why we are noticing a new hub for infrastructure development in the region," says Hossam Al-Rashoud, CEO of Maskan Arabia.
In an exclusive interview with Diana Al-Jassem of Arab News, Al-Rashoud confirmed that Maskan will be targeting the major cities and the secondary cities in the Kingdom in the coming few years.
"The challenge for the secondary cities is that the infrastructure for developers has not been provided yet. We're still waiting for the government to prepare an infrastructure for tenable developers to expand their projects," he said.
Success recipe
Can you give us a bit of background of the success recipe followed by you to develop Maskan Arabia?
Becoming one of the leading companies in Saudi Arabia is our main concern at Maskan. This is why we set our strategy that intends to build smaller projects of villas and apartments that have guaranteed results and are easy to manage. This has given the company the exposure, high reputation and the confidence of customers, in addition to achieving 100 percent sale of its projects within a short span of time. Maskan Arabia was established in 2008 and has become one of the major companies in the Kingdom. It has high potential development in terms of organization, investment and management.
Maskan Arabia is committed to providing its clients with services that are outstandingly elegant, long-life and authentic in a modern style. It has a special advantage compared to other real estate development companies since it provides a full range of integrated home development solutions under one roof providing options of quality site locations that have been carefully selected, with the best building materials and finishing according to international standards.
How do you act in order to achieve required growth?
Since the beginning Maskan Management realized the importance of developing partnerships with financial institutions that can enable it to achieve its required growth and make its products available for the majority of potential buyers. As a result Maskan and BlomInvest bank successfully launched a major housing real estate fund (SR 600 million) in early 2012. The fund is dedicated to develop around 300 standalone villas in north of Riyadh. Also, we will start developing around 54 residential units in Al-Thagar and be in the process of finalyzing a major real estate fund with one of the leading financial institutions.
Given your long involvement in the construction industry, what keeps you motivated and still passionate about your job?
The industry by itself is a motivation; there is always something new; you need to always be updated and on top of everything. As for passion, it comes by love to what I do. If you're in love with what you do, you will always be passionate.
Company agenda
What will be the future growth drivers of the residential construction industry in the Kingdom and how will Maskan grow in line with these?
It is a very competitive industry. What developers need to understand is that the residential market is very limited in the Kingdom. There are only about 4 to 5 different housing techniques, and they have been approved by the municipality in the Kingdom. There are more than 15 different housing portfolios worldwide.
It's challenging to present this kind of development to the municipality and get its approval for these kind of developments. It will definitely have a tremendous effect on the pricing per unit. We are right now in a stage, working on developing new products that Maskan is looking at, such as rural housing and also other kind of housing.
These would require municipality approval. Actual housing development today does not meet what is actually in demand. Creating the need for these kind of demands is necessary and will be the key to success in terms of quality, pricing and unit type.
What would you cite as the main challenges and opportunities facing Maskan Arabia?
We are faced with a lot of challenges on a daily basis, but I believe that challenge makes the best of you; it will require you to think outside the box and develop new techniques that will help you overcome those challenges. As for opportunities, it's a growing market. There's a lot of actual demand Maskan has developed in its internal capacities, which will enable us to grow and be a leader in the industry.
Where are the main geographical areas of opportunity for developers looking to tap in Saudi Arabia? What are the challenges in these areas and what is needed to address these challenges?
Well, geographically speaking today Maskan projects are focused in Riyadh only; our plan is to expand in the Eastern Province. Maskan will be targeting the major cities and the secondary cities in the Kingdom. The challenge for the secondary cities is that the infrastructure for developers has not been provided.
Saudi Arabia is suffering from a small number of compounds and with high prices. What are your company's plans in terms of residential compounds?
It's true for now and as you know we lack an elevated quality housing developer in Saudi Arabia, and most developers investing in projects are producing sub-standard projects. Maskan Arabia is a development company specialized in the residential sector. Compounds are among Maskan Arabia's products. It requires a lot of design skills and knowledge about each type of compound. There are three types of compounds in Saudi Arabia -- foreign expatriates' compounds, Arab expatriates' compounds and semi compounds. We're now planning to develop an Arab expatriates' compound on a land of 30,000 sq meters, which will accommodate about 200 families. This will be considered our first project of this type.
Housing portfolio
What is your outlook for future growth, particularly in the housing sector. Do you think Saudi Arabia represents the new hub for infrastructure development in the region?
As mentioned previously, there is a huge actual demand for housing in the Kingdom. The issue is that the type of the supply does not meet the required demand. Saudi Arabia is the leading player in the region, both in political and economical terms. The government is currently spending billions of dollars in infrastructure development. All the factors mentioned above make it the new hub for infrastructure development in the region.
Ahead of the introduction of new mortgage law, some analysts are claiming that it will not be comprehensive enough to impact significantly. What are your thoughts on this and what are the positive and negative aspects of the law that you can see at this time?
At Maskan, we hold several responsibilities, both business and social. Our main objective is to be the most trusted developer in the region by developing quality and durable homes within reasonable pricing. In reality, this is a very complicated job. It requires a lot of skills, starting from understanding what today's market needs and then developing different products that will cater for different segments. We have a fully dedicated team for research, product development, engineering, quality and business excellence. Those are all required to ensure that whatever we develop today will stand out and will be distinguished from others.
What are the reasons that contribute to speed up the Kingdom's need for residential projects. Is it only growing population or other reasons like globalization, inflation and baby boom?
As you indicated in your question, it's actual demand (backlog from the past plus growing population are the main reasons) which requires major actions from both government and private sector to close in the gap between demand and supply, and while ensuring sufficient flow of supply the future demand should also be considered. But there are three main causes for demand -- first, new buildings for new families; second, people who want to move into bigger houses; third, extended families that want to live in their own houses.
Also, we have a young population and expect the huge demand for housing for that population to continue. This means the people mostly in need of housing are Saudi nationals.
These people need privacy in their own homes and some require smaller individual units, so we do have a plan to go into high-rise developments later this year. Recently, Maskan Arabia conducted studies on the market and real estate sector: One study on Riyadh's 2011 real estate market found there is demand for 40,000 units and that less than 10 percent of that was delivered in 2011. Also, the major issue everybody is facing today from the developers to the end-users is to buy a new and affordable product. The real estate market in the Kingdom needs to mature. It is not regulated and therefore does not have the laws and regulations required for guiding it. As a result of this the landlords, who own the land, dictate the land prices that are incredibly high. For example, in desert areas there is so much land that is unserviced and undeveloped, and the prices are incredibly high despite the landowners having no service costs or taxes to pay. These prices are prevent any development that is built on this land from being affordable. Land values are up 100 percent over the last five years and there has been a 30 percent increase on the land price from last year alone.
The high price of land is also having an effect on the quality of the finished development and that is why so many developments are substandard in the Kingdom. A service tax is needed on all these huge plots of land.
They also cost the municipality lots of money every year because they have to be bypassed in order to continue infrastructure developments, because they are too expensive to buy from their owners. With a tax, there will be a greater incentive to sell the land for development.
Things are slow to change here but these are national issues that everybody is talking about, and they all know that is a problem, so things have to move at a faster pace. It's good to be regulated, and regulation is needed to improve. This can be solved in the near future, but if we continue to go the way we are going today, developers will be forced out of the market.
How do you evaluate the demand and supply of the raw materials. And do they have an impact on your projects?
With all the projects that are happening today and the continuous government spending on construction projects, the cost of material and labor are at its peak, which affects all projects. In the last two years, there was a steep hike in prices of cement as well as in labor wages due to scarcity of skilled workers. As you know, the construction projects depend mainly on three components -- workers, materials and equipment -- and any shortfall in their supply or price-rise would affect the projects adversely and any shortage of workers leads to an increase in their wages.
Construction cost is an issue. However, a major problem that we are facing today is about the availability of qualified small- to mid-size contractors. Also, the high cost of construction is not the only obstacle that is faced by real estate development companies. In fact, high prices of 'white lands' and lack of proper financing solutions signify the main problem that prevents citizens from obtaining proper affordable housing for their families and represent a major challenge for investors in this field.
© Arab News 2013
