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.