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Monthly Archives: September 2012

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.

 
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Posted by on September 9, 2012 in Uncategorized

 

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.

 
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Posted by on September 9, 2012 in Uncategorized