New mortgage law approved in Saudi Arabia

Saudi Arabia has approved a draft law allowing mortgages to be sold in the kingdom for the first time, the state news agency has confirmed.

Housing has long been an issue in a fast growing country of 27 million people, most of whom are under the age of 30 and face limited options for getting a mortgage.

The law is also expected to be a boon for banks, by creating a new revenue stream. Annual demand has been put at 150,000 and 200,000 units per year, according to real estate service company Jones Lang LaSalle.

‘It should help address one of the critical social issues in the kingdom. Banks are well capitalised, liquid and geared up to proved the lending that is required,’ said James Reeve, senior economist at Samba Financial Group.

The long awaited law has been held up due to considerations around providing mortgage finance in an Islamic sharia compliant manner, and how to deal with sensitive issues such as letting banks take away a borrower’s home if they default.
While not providing details, the statement reported by the Saudi Press Agency said the draft includes measures ‘to ensure the fairness of the transaction and the safety of the financial system’.

Home loans do exist in Saudi Arabia, with payments deducted from salaries when these enter bank accounts. However, the new law allows for the first time the creation of products secured against the property, meaning the borrower can benefit from ownership of the asset, the statement said.

Regulation of the mortgage sector will be undertaken by the country’s central bank, the Saudi Arabian Monetary Agency, the statement added.

 

Property rents soar in Saudi Arabia, analyst report shows

Residential property rents in Saudi Arabia’s main cities have increased by up to 15% in some locations in the first six months of the year.

The latest analysis report from real estate consultants CBRE explains that an increasing population and a rapid rise in per capita GDP has led to soaring rents.

There has been a 2.8% population growth and strong oil revenues in 2011 have resulted in Saudi Arabia’s per capita gross domestic product (GDP) increase by 25%.

As a result, residential rental rates for villas in Riyadh increased by around 10% in the first half of 2012 and apartment rents were up around 15% in the same period.

In Jeddah, demand for low cost housing saw the government launch the Saudi Pension Fund, which plans to develop 10,000 units in the northern district. However, it is unclear as to when the project will be completed and contractors have yet to be appointed, CBRE said.

Away from these plans, average villa prices rose by around 10% in Jeddah during the first six months of 2012, although CBRE said the southern part of the city experienced lower growth rates.

By contrast, a surge in supply has dented the commercial office market in the two main cities, but landlords are still reluctant to offer incentives or rental decreases.

In Riyadh, there is approximately three million square metres of office space in all categories, while the mega King Abdullah Financial District (KAFD) will alone add approximately 1.2 million square metres of prime office space to the market.

While vacancy rates are currently at around 15%, CBRE said the sheer volume of new quality space due to enter the market at KAFD alone seems likely to overwhelm this category in supply terms.

Over 800,000 square metres of quality office space due to enter the Riyadh office market in the next two years, but landlords have not fully embraced the concept of incentives or rent reductions, and it may well be that those properties that do not secure tenants in the short term will struggle over the medium term, the CBRE report says.

As a consequence, rental rates in Jeddah and Riyadh have declined by around 11% in the first half of 2012.
Meanwhile, the latest report from the National Bank of Kuwait shows that property sales increased by 18% in June compared to the previous month led by the residential property sector.

Real estate sales in June totalled KD266 million ($942 million), almost unchanged from June 2011 but up 18% month on month.

Residential sector sales totalled KD148 million, an increase of KD34 million compared to June 2011 on the back of an increased number of transactions.

Ahmadi governorate saw the highest number of transactions for plots of land, the report said, adding that Hawalli governorate saw the most activity for home transactions.

The NBK report said that the investment sector saw KD113.1 million in sales during June, down KD22 million compared to a year earlier while the commercial sector saw just KD5.3 million in sales, a drop of KD8.5 million compared to the same month of last year with two out of three transactions taking place in Kuwait City.

The report added that the Savings and Credit Bank (SCB) approved almost KD10 million in loans at an average of about KD63,000 for each successful application.

 

Saudi property market performing well says JLL

Villa prices in Jeddah have increased by up to 11% in the first quarter of 2012, signalling that the Saudi real estate market is performing well, to a new study by real consultancy firm Jones Lang LaSalle.

The western area of the Red Sea city saw average rates of around SAR4,600 (US$1,226) per square meter and the capital city Riyadh has also seen prices rise, with average villa prices up to SAR4,200 (US$1,119) per square meter.

Apartment prices are also higher at SAR2,600 (US$693) per square meter and in the office sector, the recent sale of the Eastern Tower in Jeddah has shown there is strong demand.

But the completion of new projects in both cities is likely to see rates start drop in the second half of 2012, JLL says.
The retail market has become more fragmented, with an increasing variation between the rents that can be achieved for line stores in the most popular centres and the average rental value around SAR2,380 (US$634) per square meter, which has remained stable in the first quarter of 2012.

While Riyadh did not see the completion of any new hotel projects, Jeddah has remained one of the strongest performing hotel markets in the Gulf, with occupancy rates of 79%, room rates of SAR770 (US$205) and revenue per available room also on the rise.

‘The residential and hotel sectors of the Jeddah market have so far performed most strongly this year, with continued growth in sale prices, rental levels and occupancies,’ said Soraka Al Khatib, head of JLL’s Jeddah office.
‘In the office and retail markets, the completion of more projects will increase options for tenants during 2012 and will lead to more competitive rental levels being offered to retain and attract tenants,’ Al Khatib added.

 

Saudi announces measures aimed at expanding its property market

Saudi Arabia has set up a ministry for housing as the world’s largest oil exporter seeks to address huge demand for new residential properties.

The Gulf nation is facing a massive housing problem due to rapid population growth and an inflow of expatriate workers coming to the kingdom.

A report by Banque Saudi Fransi last week said private and public developers need to build about 275,000 units a year through 2015 to meet the country’s demands for about 1.65 million new homes.

Shwaish bin Saud al-Duwaihi al-Mutairi has been appointed minister of housing and King Abdullah has announced $93 billion in social handouts which included SR250 billion ($66.7 billion) to be spent on 500,000 new homes.

The move is part of the ruler’s efforts to stave off a wave of Arab unrest that has gripped neigbouring Bahrain, Yemen and Oman. Saudi Arabia is an absolute monarchy where political parties are banned and there is no elected parliament.

Insiders say that the King’s pledge to build more homes shows the kingdom’s intent to address vast undersupply but there is no quick fix for its property woes.

‘We see that it’s a commitment and recognition of a challenge facing Saudis but we don’t expect it to have immediate impact, with substantial time needed to deliver the number of housing units,’ said Monica Malik, chief economist at EFG-Hermes in Dubai, adding it could take some five years before the homes would be built.

The Kingdom’s population has doubled in size since 1988 and grows more than 2% annually. It is expected to reach 30 million in 2017, double the figure just 30 years ago, new research by Euromonitor International has revealed.

Its analysis of the kingdom’s population growth to 2030 also shows the number will hit 36.5 million by the end of the period under review, representing a near 40% rise compared to 2010.

However, the absence of a clear mortgage law, which has been in planning stages for almost a decade, has left Saudi with no framework to govern property ownership, deterring foreign banks from lending and private developers from entering the market.

Saudi Arabia has only a 2% mortgage penetration in its real estate market, industry experts said. ‘Only 30% of Saudis actually own homes and less than 1% of all homes purchased are financed by mortgages,’ Waseem Saifi, the global Islamic Banking head at Standard Chartered Bank.

‘Most development so far has happened at the upper end. We need to see a lot of additional units coming at the middle level where demand is really there from the Saudi community,’ he added.

 

Middle East property investors look to Saudi and Egypt

Middle East investors are buying real estate again but they are looking at affordable housing projects in Saudi Arabia and hotel developments in Egypt, rather than Dubai.

Indeed, Dubai is still struggling to attract both domestic and overseas property buyers as confidence in the emirate’s real estate market remains low.

International property consultants Colliers International says that investors plan to put a larger proportion of their funds into real estate assets in the coming 12 months, with low cost housing in Saudi Arabia among the top picks.

Some 70% of investors polled by the brokerage said they were likely to increase their real estate holdings, with two thirds reporting target returns in the region of 15 to 20%.

Midmarket developments in Saudi Arabia and hotel properties in Egypt were ranked among the most attractive investment opportunities, the report said.

‘With government plans to spend nearly $70 billion on low income housing the market outlook for Saudi looks particularly strong,’ said John Davis, chief executive officer of f Colliers International, MENA.

In Egypt we are seeing a lot of cautious prospecting with an intention to buy despite the Arab state’s rocky political situation. Conviction in the country’s long term fundamentals, especially in the tourism sector, will likely drive opportunistic acquisitions of hotel assets,’ he added.

Some 70% of those polled said the relative value of real estate in the Middle East had improved strongly, compared to 10 years ago. Despite this, nearly half of investors said they remained wary of taking on any further risk in their real estate portfolios.

Affordable property has been marked as the next battleground for Middle East developers, as Arab states struggle to close a chronic housing shortfall for their populations.

The market is seen as highly lucrative, with governments across the region ring fencing billions of dollars in funding to provide homes for their citizens.

The Middle East and North Africa has an estimated affordable housing shortfall of 3.5 million homes with nearly half in Egypt, according to Jones Lang LaSalle.

Investors polled in the Colliers report said the cost of finance for real estate investment had shown no signs of improvement, despite a comparative upturn in the regional economy.

More than half, 60%, said financing costs had shown no change since early 2011 and said banks remained nervous of lending, even for full-occupied office buildings on long leases.

Respondents also said the fallout from the Arab Spring uprising would affect their ability to expand their property portfolios, as the shape of local governments remains unclear.

Egypt, post revolution, has brought a flurry of lawsuits against foreign buyers over land and property deals concluded with the previous government, shaking investor confidence.

 

Holy Cities in Saudi Arabia offer unlimited real estate development potential

Arabia are attracting a lot of international attention from real estate developers and investors, according to the first ever global report into their potential.
They are unique in the region in that they benefit from unconstrained demand from pilgrims visiting the holy sites and from a growing local population, says the report from global real estate consultants Jones Lang LaSalle.

The number of religious tourists could increase from 7.8 million to 13.75 million by 2019 that will lead to opportunities to expand the hospitality market with a total of 82,000 rooms required by then.

There has been a marked surge in interest in Saudi Arabian real estate market in the last few years. Most of this interest has been focused on the largest two cities, Riyadh and Jeddah with Makkah and Madinah being less in the international spotlight, the report says.

But the hospitality markets of these two Holy Cities are unique in benefitting from an effectively unlimited pool of demand. The major constraints on the growth of these markets is, therefore, the ability to accommodate this demand and balance the sometimes conflicting of religious pilgrims and local residents, it points out.

‘While other real estate markets across the Middle East and North Africa (MENA) region have seen a slowdown in both development activity and investment over the past 18 months, Saudi Arabia has remained strong from both local and overseas investors,’ the report adds.

Based on its unique combination of energy driven capital and a large domestic population, Saudi Arabia emerged as the MENA destination of choice among real estate investors responding to Jones Lang LaSalle’s most recent Real Estate Investor Sentiment Survey.

The country of 27 million inhabitants has been experiencing a baby boom in recent years, resulting in a very young and rapidly growing population. There is also a rapid increase in expatriates which now totals 28% of the population with most coming from other Muslim countries.

While restrictions on foreign ownership of property across Saudi Arabia have been relaxed recently, foreigners are still prohibited from owning land in the Holy Cities but this has not constrained involvement with a number becoming major players through joint ventures with Saudi developers.

Major infrastructure developments are being planned including work to airports, train stations and roads. The hotel market is also expected to increase massively. With 7.7 million pilgrims visiting in 2008, the market in Makkah and Madinah have attracted significant interest from both local and overseas investors and developers.

Most of the existing stock of hotel accommodation is not of international quality and there is a clear need to increase this supply.

The most prominent real estate project is Knowledge Economic City five kilometers from the Holy Mosque in Madinah which includes a technology park, a medical centre, business district, a major retail hub, residential units, a convention centre and a hospitality complex.

‘It is poised to uplift the quality of living to international standards,’ the report says. Phase one is currently under construction with villas due to be handed over in 2011.