HOUSING MARKET PICKS UP PACE IN SAUDI ARABIA

The real estate sector in Saudi Arabia is gathering steam once again as the kingdom’s housing projects roll out. Real estate gross domestic product rose 2.4% in the second quarter of this year, beating the 2.21% growth during the same period last year, according to the General Authority for Statistics.

Real estate activities contributed SAR 35.2 billion to the economy in the quarter, compared to SAR 34.4 billion in the previous period. Overall, real estate accounted for 5.5% of Saudi Arabia’s GDP in the second quarter.

Jones Lang LaSalle (JLL) expects more than 50,000 residential units to be delivered into the Riyadh market alone in the next two years. Majority of the projects are expected to comprise high-quality apartments and townhouses that meet the population’s need for more modern and contemporary living solutions at affordable rates.

“These efforts continue to be supported by growth in demand as a result of government initiatives to increase home ownership rates to 60% by 2020 and 70% by 2030 as stipulated in Vision 2030,” according to the real estate consultancy.

Statistics from the Saudi Arabian Monetary Authority (SAMA) shows an annual acceleration in real estate loans in Q2 2019 versus Q2 2018. This indicates financial institutions have been allocating an increasing share of their loans to housing and real estate.

Real estate loans by banks had risen to SAR 263.72 billion by the second quarter, a 21.64% increase over the same period last year, according to SAMA. Of these, SAR 165.87 billion were retail real estate loans, a 29% jump over the second quarter of 2018, while corporate real estate loans stood at around SAR 98 billion, or a 10.85% increase.

The total number of residential new mortgages finance for individuals provided by banks jumped to a record 34,905 in the second quarter – a dramatic 259% increase over the same period last year, as financial institutions heed the government’s call to raise ownership.

July and August have already seen new mortgage contracts of around 26,772 combined, suggesting that the first eight months of the year has already exceeded the 46,885 contracts issued in all of last year, according to data extrapolated from SAMA.

Similarly, finance companies are also raising their exposure to real estate loans. The second quarter showed new real estate loans of SAR 17.7 billion, a year-on-year increase of 16.2%. Residential new mortgage contracts for individuals provided by finance companies surged nearly 117% to 2,153 by the end of the second quarter, SAMA data shows.

In Jeddah, there were around 1,500 stand-alone units by the end of the second quarter, bringing the total stock of residential units in the city to 821,000, with a further 4,000 units expected to be handed over during the second half of the year.

JLL noted that scheduled completions this year include the mid-rise Al Tawheed Tower along the Corniche (122 units), Emaar Residences ‘Abraj Al Hilal 3’ within Jeddah Gate (283 units), and the first phase of Manazil Al Safa.

“While most projects are nearing completion, some are either available for reservations only or are put on hold until market conditions and sentiment improves,” JLL said. “Looking ahead, and assuming no further delays in construction, an additional 14,000 units are expected to enter the market between 2020 and 2021.”

To fulfil its ambition of increasing home ownership by Saudi nationals to 60% by 2020 and 70% by 2030, Saudi Arabia’s housing ministry announced a plan to build approximately 19,500 residential units for its nationals under the ‘Sakani’ housing development programme.

Sakani’s latest report notes that 55 housing projects are being built in partnership with the private sector, which will provide 100,000 housing units across the kingdom. There are more than 40 housing projects ready for residential projects around an average price of SAR 350,000 featuring integrated infrastructure, such as water, electricity and communications networks and lighting, sidewalks, asphalt roads, green areas, parks and public service facilities.

Saudi Arabia’s inclusion in the FTSE Russell Index and MSCI emerging market index is also reverberating across the wider economy. In June, Tadawul announced the inclusion of Saudi Stock Exchange in the FTSE EPRA Nareit Emerging Index (EPRA: European Public Real-estate Association). The index specialises in REITs and real estate companies.

“Saudi Arabia is the largest emerging real estate market by value in the EMEA region that is now accessible for global investors through Saudi REITs included in the Index,” said Ali Zaidi, director, research and indexes at EPRA.

“The reclassification of Saudi Arabia as an eligible market for the FTSE EPRA Nareit series not only benefits investors in gaining access to a high potential real estate market, it also enables Saudi REITs to harmonise reporting and ESG standards valued by institutional investors. EPRA welcomes the inclusions and is encouraged for further expansion of the index in EMEA,” Zaidi concluded.