What has changed for Saqifat al Safa over the past three quarters?
A lot; the market has started to reshape itself with all the changes that government has made. They have started initiating the VAT tax, and the initiation of the program was sudden since none of our calculations for our projects were based on VAT. However, we support the concept, and it is about time the government starts to move away from oil-generated income to taxes and service fees. I anticipate that this will be for the better of society, but on the other hand some changes in labor laws and fees have also affected the market. Everything that is happening is the foundation for going forward on the 2020 and 2030 vision of the Kingdom. We are happy it is being done; it is not just a vision but a vision being put into practice.
You spoke about a policy made in 2013 that stopped a large number of people from taking out new loans to buy property. Has this policy changed?
I wrote to the Crown Prince and asked him to look into it again to allow people to buy properties. To my amazement, the first time I wrote HRH the Crown Prince they responded apparently to my suggestion. I recommended that the government pay the interest for a SAR500,000 loan so that consumers can buy housing on the open market. They subsidize the loans rather than the buildings and let the market work its way through. In just a few months, they put up a whole system and are rushing to the banks trying to get a loan.
What is this program called?
They call it the expedited loan. You apply, they send you to a bank, you get your loan to buy you house or apartment, and they pay your interest up to half a million for the whole term; that was my recommendation. I was enthused by this undertaking, which drove me to write about letting people buy properties during the waiting phase for the King Abdullah Loans, and when their term comes up they get the loan. It is just a methodology to increase the turnover of sales. In late 2016, the total turnover was SAR436 billion in property per annum, and when they started this land and loan program the volume of turnover started to decline by an average of SAR70 billion per year. In 2018, I expect it to have fallen by approximately 70% to SAR175 billion, so prices have not fallen as much as the volume of trade has. That is healthy because the prices here in real estate have tripled between 2009 and 2012 Kingdom wide. We did a correlation for it and found that it is panic money going to real estate because oil prices were not increasing, while food and other consumer goods were. Therefore, we did a correlation study to find out why the value of property was going up so fast. We discovered that after the global lending crisis in 2008 the confidence in shares and financial instruments went down a lot and everybody started to buy gold. Gold prices went up to 2000 dollars an ounce globally. However, in Saudi Arabia the increase was in real estate because we do not really trade gold due to Zakat, the religious tax on gold and reserve cash. Hence, a vast price increase happened, and the market needed to correct itself. We are developers and look more into continuity, longevity, and the benefits to be reaped from consistency. We are not disappointed with the situation, and the less expensive the value of land, the better for our children and grandchildren.
Are you being consulted about changes that may affect your sector?
When the land fees structure was created we were consulted, but of course, it is a big change. I am proud of the system. The land fee structure is something I have been calling for since 2006. This controls the value of land and defies the incredible increases or price hikes that happen where people use land as a commodity. Land is not a commodity; it is something where you breed solutions for society in terms of housing, agriculture, and administrations. You do not use it for trade; you can use a small land parcel for trade but nothing tremendous. Hence, regulation is serving and it is wiser, quicker, and the results show much faster.
Have you seen an impact already?
There has definitely been an impact. Out of fairness, the tax they ascribed according to the structure we recommended is perfect. If your land does not have sewage networks, water networks, electric power generation, police services, fire brigade, or civil defense within its immediate vicinity, they are exempt 5%. So if your parcel has a neighboring parcel that is SAR1,000 per sqm and has all these services and you have none, you are probably exempt 85-90%, which is only fair.
Have landowners turned to developers to do this yet?
Not yet. That was supposed to be the case but there are only 2,400 people in the first phase of the land fees, and phase one targets undeveloped parcels that are 10,000 sqm or more. This means that in phase one there will only 2,400 applicable parcels, whereas in Phase II 10,000 sqm of developed land will be included and is meant to start in 18 months.
What are your plans for the year ahead and your expectations for the market?
We are in the property management business as well so are focusing on that field for the time being. We are still in the market and have this development that we are going to start selling soon. This is going to play a major role in funding our expenses in terms of our investment and benefitting from our investment. Prices have fallen sharply, but we are attempting to sell this development within acceptable market prices, lest it not sell. Therefore, this is a big sales program worth about SAR6 billion in land. Hopefully we start within the next month or two selling. One parcel will house a shopping mall, six hotels, and two office towers.