5.47 PM Friday, 29 March 2024
  • City Fajr Shuruq Duhr Asr Magrib Isha
  • Dubai 04:56 06:10 12:26 15:53 18:37 19:52
29 March 2024

Saudi Arabia needs 1.65m houses in 6 years

The report said land prices in Saudi Arabia also pose a challenge. (AFP)

Published
By Nadim Kawach
Saudi Arabia needs to construct nearly 1.65 million houses for its citizens over the next six years to bridge a wide gap between demand and supply caused by a rapid population growth, a key Saudi bank said on Monday.
Despite a rise in housing units over the past year, Saudi Arabia’s housing market continues to wrestle with a supply shortage and mounting demand which has placed home ownership affordability out of reach for many young Saudis, Banque Saudi Fransi (BSF) said in a study sent to Emirates 24/7.
As upward pressure on asking prices for apartments and villas gains rather than loses momentum, there is an urgent need for new units where they are required most, to provide middle- and lower-income citizens with single-family homes.
BSF noted that the Saudi government is working on several fronts to try to alleviate supply constraints, last month dedicating SR55 billion ($14.7 billion) to programmes assisting lower income citizens obtain funding for home buys.
Over the weekend, King Abdullah made a considerable call to allocate SR250 billion to the General Housing Authority to finance immediate construction of 500,000 new units, the study said.
There are also signs the state is striving to expedite the passage of a long-delayed mortgage law which, by delineating the rights of borrowers and lenders, could over time encourage banks to expand the risk profile of their clientele, potentially heralding a wave of growth in consumer finance, it said.
“Yet the short-term housing scenario is complex and puts young Saudis at a
disadvantage. The law’s passage would have the immediate effect of spurring enthusiasm in Saudi property. But prevailing house asking prices and salaries place ownership out of reach for numerous public and private sector employees, especially those in the early years of their careers,” it said.
“We estimate that private and public developers will need to build about 275,000 housing units a year through 2015, for a total of 1.65 million homes over six years, to cater to demands of a population that has doubled in size since 1988 and grows more than 2% annually.”
BSF described the housing market in the world’s top oil exporter as unique in the Gulf for an undersupply of units, adding that its half-yearly surveys of Saudi real estate show the cost of apartments and villas climbed quickly in 2010.
But it noted that despite house price constraints, the Saudi home ownership ratio is high at 60 per cent according to the 2004 general census.
Citing data by the Ministry of economy and planning, the report showed the ownership rate had fallen to around 55 per cent from 65 per cent between 2000 and 2004, over which period the ratio of average home rental costs to total income climbed to 30 per cent from 26 per cent.
“The government’s goal is to raise home ownership among citizens to 80 per cent by 2024 by boosting supply of affordable housing and expanding financing options for citizens. Attaining this could prove problematic, however, as two thirds of the Saudi population are below the age of 30 years, including 47 per cent under the age of 20 years. The number of young people moving out of their parents’ homes and into independent dwellings as they reach marriage age in the coming decade is likely to surge,” the study said.
It showed the size of Saudi families has, meanwhile, fallen since the 1980s to an average 5.65 per household in 2008 from 7.4 in 1987, creating a large pool of young-people on the hunt for mid-market detached, affordable homes.
“Considering the housing supply-demand gap and the impending boom in youth demand for homes, we are bullish on the housing sector and confident the mortgage law will widen the scope of home ownership in the long term,” it said. “Still, reforms to address the market’s structural deficiencies will need to complement the law… developers must focus on building supply of affordable housing since prevailing salaries are largely not high enough to support a mortgage finance boom. Quality and energy efficiency must also be prioritised.”
The report said land prices also pose a challenge, noting that plots of residential land have risen sharply in price over the past decade and that some estimates say land accounts for more than half of total building costs.
“The state’s move to grant some developers the right to sell units off-plan should encourage construction of large-scale projects and such reforms must continue.
Barring a holistic approach to housing sector reform, many young Saudis could be compelled to rent instead of buy due to comparatively low rental yields, keeping a strain on already high rents and reducing ownership rates.”