(AP)   

 

 

The real estate market in Saudi Arabia has undergone dramatic growth with total investments doubling in 2007 as compared to 2006. But despite the big leap in investment, the market is still suffering from a shortage of supply, especially of affordable low- and middle-income housing.

 

Data from Mazaya real estate shows that total investments more than doubled during the year 2007, reporting a 115.9 per cent annual growth. Total investments stood at SR100.4 billion (Dh98.33bn) by the end of 2007 as compared to SR46.5bn during 2006. This was backed by increased prices as well as greater demand and activity within the sector.

 

The year 2007 also witnessed impressive performance in the real estate sector, especially in terms of volume. According to the Mazaya real estate index, volumes of real estate deals concluded reported a new record level of 114 million sq m up from 50.6 million sq m recorded for 2006.

 

Similarly, the total invested liquidity in the sector amounted to SR100.4bn by the end of 2007, as compared with SR46.5bn in 2006.

 

Fuelling the demand for real estate are government regulations and initiatives allowing foreign ownership, low to medium interest rates and high levels of liquidity, coupled with rising demand from an expanding population along with the influx of expatriates.

 

This has led to greater construction activity. Building permits as a proxy for construction activity in the economy reported 11.1 per cent compound annual growth rate over the period 2000-2005 – a direct result of the huge increase in total building permits issued during the year 2005, which peaked at 55,369 permits.

 

The number of permits issued, however, went down from 53,856 in 2006 to 36,214 a year later, according to initial data from the Ministry of Municipal and Rural Affairs. The decline was a sharp 32.8 per cent, bringing it almost in level with 2003.

 

According to Global Research, the research arm of Global Investment House, residential permits continued to account for almost 90 per cent of all issued permits over the period 2000-2007. Commercial and industrial permits followed, accounting for six per cent on average over the same period.

 

Unlike other countries, the Saudi real estate sector is not speculation driven but is instead a market that is driven by demand fundamentals, where demand surpasses supply for almost all segments.

 

Such an undersupply scenario poses a major challenge, especially for the affordable low-income housing segment, a scenario that is expected to continue for the short to medium term, Global Research said. Figures from the Ministry of Economy and Planning show by the end of the seventh development programme, accumulated unmet housing demand stood at 270,000 units.

 

On the other hand, vacant housing units were as high as 12 per cent to 15 per cent of total available units. This indicated that available supply is beyond the purchasing power of large segments of the population.

 

“That is one of the major challenges to be addressed by the eighth development programme,” a report from Global Research said. “Simultaneously, the new mortgage law will have a major role in supporting Saudis’ plans to finance their house purchases.”

 

Population in the Kingdom is forecast to continue growing at an average annual rate of 2.5 per cent and is expected to result in a total population of 25.66 million by the end of 2009. Also, by the end of 2009 more people will come into a marriageable age, thus demanding more housing units.

 

Based on these assumptions, the eighth development programme estimated future housing demand at one million units over the period 2005-2009. This implies an average increase of 200,000 units per year.

 

Investment wise, this translates into the residential housing construction sector requiring SR500bn to construct the projected one million units up to the end of 2009.

 

The commercial property segment is also facing a period of increased demand, surpassing the supply of both retail and office space due to increased business and investment activity in the country.

 

According to some reports, property prices have continued to increase but not at a level that dissuades both developers and consumers. However, real estate prices in the Kingdom are very difficult to track since there is no price registry body. As a result, there are different estimates for price increases over the period 2002-2005. On average, however, it is estimated that prices increased by 10 to 15 per cent for residential and commercial segments respectively.

 

According to industry estimates, Riyadh and the holy city of Makkah have witnessed higher prices. Between 2002 and 2005 the average housing price increased by 12 per cent per year, while average land and commercial [office] space prices increased by 15 per cent each. Prices were highest in the holy cities of Makkah and Madinah. Riyadh came third, followed by Jeddah. Industry experts said land near the site of the Holy Mosque in Makkah is the most expensive in the world, reaching even SR500,000 per square metre.

 

On another front, Colliers International estimated the average annual price growth at 9.4 per cent and 10.7 per cent in the housing and commercial segments respectively in the period 2002-2005. The figures show office rentals in prime locations ranged between $250 and $300 per square metre. Rentals for secondary locations stood at $200 per sq m while in tertiary locations rents ranged between $100 and $150 per sq m. The mall segment saw increasing rents that ranged between $267 and $800 per sq m per year.

 

 

The numbers

 

SR100.4bn Total investments in real estate in Saudi Arabia last year as compared to SR46.5bn in 2006

 

11.1% The compound annual growth rate in the number of building permits

 

270,000 The accumulated unmet housing demand in Saudi Arabia, according to figures from the Ministry of Economy and Planning

 

$300 Per square metre was the cost of rentals in prime locations for office space. Rentals for secondary locations stood at $200 per sq m

 

2.5% Growth in population is forecast in Saudi Arabia, which is expected to result in a total population of 25.66 million by the end of 2009