SOLVING SAUDI’S HOUSING QUAGMIRE

Saudi Arabia 2017 | CONSTRUCTION & REAL ESTATE | FOCUS: INCREASING HOUSING SUPPLY

Over the course of the past 12 months, Saudi Arabia's government has continued down its path of drastically overhauling the local housing market to meet surging demand.

Spearheaded by the Ministry of Housing, an institution that is itself merely eight years old, the solutions to the country's housing shortage are ones that directly impact a number of sectors, from construction to financing. Moreover, as the implemented policies revolve around providing easier, more affordable access to homes for citizens, and in particular the booming young population and first-time buyers, it is also one of the most important socioeconomic issues on the Kingdom's national agenda, making it a key component of the Vision 2030 reforms.

In fact, according to the Minister of Housing, Majed bin Abdullah bin Hamad Al-Hogail, strains on the local residential sector “take the lead” in the “large synchronized government efforts toward trying to solve national challenges.” This is because, despite widespread government efforts and growing private sector participation, the gap between supply and demand continues to widen exponentially.

A closer look at the demographics reveals why. As a nation with one of the youngest populations in the world, over half of Saudi's citizens are under the age of 25. However, there is a shortfall of 100,000-200,000 housing units delivered to the market each year. While currently 47% of Saudi's own their homes, it is clear that unless a concrete transformation plan is introduced—and successfully implemented—this figure will likely dwindle as the local population surges to 37 million by 2025.

In line with Vision 2030, the government's response has been broad-based and purposeful in tackling the supply deficit head on. And as with most other sector impacted by the Vision's reforms, the focus will be on privatization. Specifically, the ministry hopes that the PPP model will contribute over 1.5 million homes up until 2022, and has allocated over SAR200 billion (USD53 billion) in private-sector incentives to further stimulate developers, such as offering financial support for those using energy-efficient installations.
Another key policy is the revamping of the Real Estate Development Fund (REDF), which assists and subsidizes over 500,000 citizens looking to get their foot on the property ladder. According to the Minister, the REDF will also, “use its USD50 billion assets to invest back into the real estate development sector, which is a major cash injection into the supply side of the sector.” Speaking on the REDF's new role, the fund's Director General, Ayham Al Yousef added, “By 2018, we will have moved away from being a lender utilizing huge resources to becoming a market maker, one that can support banks strategically or tactically, introduce products, pull out other products, and to be able to move the market strategically to the benefit of citizens, who are our beneficiaries.”

An increasingly popular means of accessing fresh financing for the housing sector has been through the issuance of Real Estate Investment Trusts, or REITs. At the beginning of 2016, the Capital Market Authority approved the listing rules for REITs, paving the way for easier, direct access for smaller investors in Saudi's real estate.

Despite the obstacles that lay ahead, not least stubbornly low oil prices, which often have a tit-for-tat impact on construction, Saudi Arabia's leadership has shown it has the determination and mechanisms to solve one of the greatest challenges of its young and vibrant generation.