REAL ESTATE

SAUDI PROPERTY SECTOR IN ITS PRIME AS MORTGAGE LENDING SOARS

Saudi Arabia’s real estate sector saw prices rise 0.4% in the second quarter of 2021 compared to the same period last year, as economic activity resumed.

Residential real estate prices increased by 0.8% on an annual basis in the second quarter of the year, mainly due to the rise in prices of residential land plots by 1.0%, which contributed to the expansion in the general index, according to the General Authority for Statistics (GaStat).

Among other residential real estate categories, prices for residential buildings decreased by 0.2%, as well as villas (-2.3%), apartments (-1.6%), and houses (-1.1%).

The steady improvement in housing prices follows a 0.2% year-on-year gain in the first quarter.

HOME OWNERSHIP A PRIORITY

The housing sector has gained strategic importance as the kingdom aims to boost home ownership from 47% in 2016 to 70% by 2030, as part of the Saudi Vision 2030 initiative. The home ownership rate in 2020 was 62%, according to the International Monetary Fund.

“Real estate developers added around 344,000 new housing units in 2020 — an increase of 4.1% from 2019 of which 30% was supplied through the partnership with the private sector programme (Shrakat) and the developers’ platform Etmam,” according to the IMF. “These initiatives ensure access of qualified developers to interest-free financing, provide subsidised or free land for construction, and facilitate licensing and legal permits.”

The IMF also lauded the government’s rollout of real estate financing loans, noting that the Sakani programme provided around 266,000 residential loans and free land packages in 2020.

“Under this programme, beneficiaries can obtain subsidised mortgage loans up to SAR 500,000 — they receive a subsidy on the interest payment to the lender not on the principal payment according to income level and family size.

“Low income households can obtain a mortgage guarantee and subsidised loan up to SAR 500,000 or free land parcels. The value of new residential mortgage contracts increased by 84% in 2020 to reach SAR 136 billion, of which 96% were government-subsidised loans.”

BUILDING BLOCKS

Saudi Central Bank’s monthly report for July shows more than 150,550 new mortgage financing contracts were provided by banks in the first six months of the year, compared to 130,743 during the same period last year, or a 15.15% increase.

Overall, just under SAR 77 billion worth of mortgages had been issued during the period, compared to SAR 59.7 billion in the first half of 2020 – or an impressive 29% increase, SAMA’s monthly data shows.

And new housing projects continue to come online. In August, Roshn, the kingdom’s national community developer owned by the Public Investment Fund, launched its first residential community in Riyadh featuring 30,000 homes.

“More than 4,500 homes will be built in Phase One of construction. The modern, integrated community will provide homes with different sizes and facades to cater to all residents. Homes will be made available ready to live in and will come with kitchens, split unit ACs, water heating systems, and LED light fixtures, among other amenities,” the company said.

Real estate consultancy Jones Lang LaSalle noted that construction activity in the kingdom’s residential market remained active in the second quarter, with various projects delivered across the main cities, and around 26,500 units handed over during the first half of the year.

This brings the total residential supply to 1.3 million and 840,000 in Riyadh and Jeddah, respectively. While the total stock for Makkah and Dammam Metropolitan Area stands at 404,000 and 366,000, respectively.

“In terms of performance, asking sale prices for apartments and villas jumped by almost 10% in West Riyadh when compared to the same period last year. Meanwhile they also increased almost 12% in North of the city over the same period,” JLL said in its second quarter report on the kingdom’s real estate sector.

With Saudi Vision 2030 projects in full swing and new cities coming up, the real estate sector should continue to see brisk activity.

The government has also introduced digital solutions for homebuyers, which has accelerated eligibility checks and applications and allow easier access to financial products for homebuyers.

“The Ijar initiative provides digital solutions for the rental market to increase transparency and efficiency, through standardising electronic rental contracts, establishing the regulatory framework for real estate brokerage firms and providing a digital matching platform,” the IMF said.