LONDON: Over the last three and a half decades, the demography of Saudi Arabia, the world's largest oil producer and exporter, has perhaps seen the single most dramatic change.
The baby boomers of the 1970s and 1980s have seen to it that the Kingdom has one of the youngest population profiles in the world, which augurs well for the economic and development challenges that lie ahead for the next 35 years.
Thanks to the oil price market correction in 1973, in a relatively short period the Kingdom has transformed itself from a backward desert outpost to a modern emerging industrial giant that fuels key economies from China to the US.
Today, Saudi Arabia is not merely the world's largest oil exporter and producer with the largest proven reserves, it is also the world's largest exporter of petrochemicals and it boasts the fifth largest reserves of natural gas.
In addition, while the official foreign reserves held by the Saudi Arabian Monetary Agency (SAMA) are just under half a trillion US dollars, private liquidity in the Kingdom is estimated at $1.2 trillion.
The resilience and apt management of the Saudi economy and finances is underlined by the fact that the Kingdom has weathered the storm of the current global financial crisis well, with 2009 real GDP growth estimated at 0.2 percent and expected to accelerate to 3.2 percent in 2010.
However, to meet the economic and societal challenges of the next 35 years head on, it is not merely sustainable oil prices that are vital.
Equally important is the human capital challenge - the nurturing of the next two generations of Saudis who will have to navigate and negotiate the development road map for the Kingdom, balancing the needs of an advanced oil and gas-based economy with the modernising influences of progress, affluence and socio-religious heritage.
The Kingdom's population has increased by more than 5 million in the last decade alone and is expected to reach about 27 million by next year.
According to Bank Saudi Fransi in 2008, 36.8 percent of the total Saudi population was 14 years of age or younger, while 43.3 percent was between the age of 15 and 39. This means that a staggering 80 percent of the population is 39 years or younger.
This makes Saudi Arabia a haven for consumer services ranging from housing provision, education, health care, motor vehicles, retail business and financial services.
Affordable housing provision will be the single biggest challenge for the Kingdom as it is in all metropolitan areas of the world.
The drivers of demand for housing are more acute in the Kingdom because of its demographics and the vagaries of its economy, which is underpinned by the oil and gas sector.
A report last year commissioned by the Land Transport Committee at the Jeddah Chamber of Commerce and Industry revealed that Jeddah's population density is increasing annually by 20-28 percent, followed by Makkah with an increase of 20-25 percent and Riyadh with an increase of 18-20 percent.
The report concluded that the Kingdom's population density has increased by more than 120 percent during the six years from 2002 to 2008.
Similarly, according to Michael Essex, who is director for the MENA Region pf the International Finance Corporation (IFC), the private sector funding arm of the World Bank Group, Saudi Arabia also has one of the highest housing densities (persons per household) in the world. In 2008 this was 6.4 percent, compared to India at 5.5 percent.
The Kingdom's annual population growth of 2.9 percent was second only to Yemen's three percent. Similarly, Saudi Arabia's urban population is very high. In early 2008, a staggering 88 percent of people in the Kingdom lived in urban areas.
"There is a strong pent-up demand for entry-level housing in Saudi Arabia that will only grow in the future," Essex warns though.
The IFC estimates that there will be consumer demand for an additional 4.5 million housing units in the Kingdom over the next 15 years.
This means that there will also be an increase in demand for housing finance and huge pressure on local financial institutions to offer such funding.
The imminent introduction of a Saudi mortgage law is inevitably set to boost the residential housing and finance market in the Kingdom, which could see the very nature and structure of consumer finance change dramatically.
Real estate remains the most attractive investment prospect for Saudi business leaders because it has a low risk perception among local businessmen who remain skeptical about the prospects for equities over the next few years, especially in a global economy still coming to terms with the twin effects of the credit crunch and the financial crisis.
According to Deutsche Bank Research, the total outstanding home finance provided by the private sector in Saudi Arabia aggregates to less than one percent of GDP, compared with well over 50 percent in most developed countries, approximately six percent in Kuwait and seven percent in the UAE.
Deutsche Bank Research projects Saudi Arabia will need 1.2 million additional housing units by 2015. In addition, based on market assumptions it estimates that when the new Saudi mortgage law is enacted. it will contribute to an incremental demand of approximately 55,000 additional units per year.
In 2008 housing finance demand totalled $13 billion, but specialist housing finance providers, usually companies owned by developers, met only $1.5 billion of this demand.
In 2009, home financing accounted for only 9.9 percent of total consumer loans and 2.4 percent of total loans, reflecting the upward growth potential. Saudi home loans according to SAMA totalled SR17.86 billion last year - an increase of 19.8 percent on 2008. This is despite a slowdown in bank credit.
Not surprisingly, there have been a number of important initiatives in housing finance provision to leverage the anticipated boost in demand in the Saudi market post adoption of the mortgage law.
In 2007 for instance, the IFC together with a group of Saudi partners set up the Saudi Home Loans Company.
Earlier this month Deutsche Bank AG, together with a group of prominent Saudi-based investors led by Fahad Abdullah Abdulaziz Al-Rajhi, established Deutsche Gulf Finance, a joint venture home financing company whose initial aim is to contribute to the growth of home ownership in Saudi Arabia and to expand its operations to other Gulf countries over time.
© Arab News 2010
