Growth but challenges ahead for Saudi real estate sector

The King Abdullah Financial District in Riyadh. (Getty)
Updated 04 May 2018
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Growth but challenges ahead for Saudi real estate sector

  • Signs that market is bottoming out after two years of falling prices
  • Riyadh commercial property sector to feel the impact of King Abdullah Financial District

RIYADH: The Saudi Arabian property market has been through two years of change and adjustment, and now looks set for growth — but there are significant challenges in both commercial and residential real estate in the Kingdom.

That was the verdict of property professionals at the Euromoney conference in Riyadh, where experts discussed the sector and its finances at a gathering that could best be described as “mixed” in its outlook.
“The opportunities are humongous,” said Abdulrahman Bajunaid, chief executive of RAFAL Real Estate, referring to the boost the sector is set to get from a mixture of government stimulus, economic growth and demographic pressure.
Not everyone agreed, especially on commercial property. “Maybe the real solution is to change all the office space in central and south Riyadh to residential,” said Ziad El-Chaar, chief executive of Dar Al-Arkan, Saudi Arabia’s biggest listed developer, about the capital’s variable conditions.
But there was general agreement that overall the market was on the up. Imad Damrah, managing director of the KSA branch of Colliers International, said that after a period of volatile real estate prices in the economic slow-down caused by falling oil prices, “people have adjusted to the new realities.” He was hopeful that growth would resume.
It has been an unpredictable few years for developers, financiers, investors and buyers. In residential, consultant Knight Frank said that some apartment prices in the best parts of Riyadh leapt by 36 percent last year, but villa prices were 5 percent down. In Jeddah and the Eastern Province overall price falls were well into double digits.
“A common trend witnessed in sales prices across key cities is that apartment prices have been less affected than villa prices as a result of a shift in demand from villas to apartments due to affordability constraints,” said Raya Majdalani, research manager at Knight Frank, in a recent report.
But data from the General Authority of Statistics suggests that residential real estate prices have flattened in recent quarters, perhaps an indication that the market has bottomed out and may be close to stabilizing.
Colliers believes that the evolution of the market was also being seen in commercial and office property. “This is evidenced by the recent entrance of themed office parks and the announcement of a forthcoming supply of integrated mixed-use developments across major cities,” its latest review said.
The capital’s commercial sector is also facing another major challenge, with the new space that will come on the market as a result of the accelerated development of the King Abdullah Financial District, just outside the center of Riyadh. Some estimate that it will double the amount of commercial and office space on offer to big banks and other financial institutions.
The other factor influencing real estate trends in the Kingdom is the growth in the real estate investment trust (REIT) sector. REITs are booming, with several listing on the Tadawul recently, with more on the way.
“REITs are a big factor, allowing developers and investors access to funds in the money markets,” said
El-Chaar. Bajunaid, of RAFAL, was even more positive. “I love REITs. They make me feel alive,” he said.
But others warned about the long-term prospects for the REITs boom. “It all depends on the underlying quality of the transactions beneath the REIT,” said Abdullah Al-Sudairy, chief executive of property finance company Amlak International.
There were particular challenges attached to residential property, according to El-Chaar. He calculated that the amount of new-build by corporate developers over the past 10 years amounted to no more than 5 percent of the total, with the unregulated self-build market by far the biggest force in new housing.
“We have got to have restrictions on self-build. It is impossible to compete with such an unregulated market,” El-Chaar said.
The drive toward entertainment and leisure as part of the Vision 2030 strategy is also a trend affecting property developers and architects. “All malls are being transformed into entertainment hubs. People will not be shopping at malls in such large numbers in the future with the growth of online retailing, so malls will have to become like the town center or the village square,” said El-Chaar.
Al-Sudairy thought there were more fundamental factors at work. “The main problem is demand, through the pressures of jobs and income. We cannot build houses if people cannot afford them, and we cannot build malls if people cannot afford to shop.”
Not everyone agreed, especially on commercial property. “Maybe the real solution is to change all the office space in central and south Riyadh to residential,” said Ziad El-Chaar, chief executive of Dar Al Arkan, Saudi Arabia’s biggest listed developer, about the capital’s variable conditions.
But there was general agreement that overall the market was on the up. Imad Damrah, managing director of the KSA branch of Colliers International, said that, after a period of volatile real estate prices in the economic slow-down caused by falling oil prices: “People have adjusted to the new realities.” He was hopeful that growth would be resumed.
It has been an unpredictable time for developers, financiers, investors and buyers. In residential, consultant Knight Frank said that some apartment prices in the best parts of Riyadh leapt by 36 percent last year, but villa prices were 5 percent down. In Jeddah and the Eastern Province overall price falls were well into double digits.
“A common trend witnessed in sales prices across key cities is that apartment prices have been less affected than villa prices as a result of a shift in demand from villas to apartments due to affordability constraints,” said Raya Majdalani, research manager at Knight Frank, said in a recent report.
But data from the General Authority of Statistics suggests that residential real estate prices have flattened in recent quarters, perhaps an indication that the market has bottomed out and may be close to stabilising.
Colliers believes that the evolution of the market was also being seen in commercial and office property. “This is evidenced by the recent entrance of themed office parks and the announcement of a forthcoming supply of integrated mixed-use developments across major cities,” its latest review said.
The capital’s commercial sector is also facing another major challenge, with the new space that will come on the market as a result of the accelerated development of the King Abdullah Financial District, just outside the the center of Riyadh. Some estimate that it will double the amount of commercial and office space on offer to big banks and other financial institutions.
The other factor influencing real estate trends in the Kingdom is the growth in the real estate investment trust (REIT) sector. REITs are booming, with several listing on the Tadawul recently, and more planned.
“REITs are a big factor, allowing developers and investors access to funds in the money markets,” said El-Chaar. Bajunaid of RAFAL was even more positive. “I love REITs. They make me feel alive,” he said.
But others warned on the long term prospects for the REITs boom. “It all depends on the underlying quality of the transactions beneath the REIT,” said Abdullah-Al Sudairy, chief executive of property finance company Amlak International.
There were particular challenges attached to residential property, according to El-Chaar. He calculated that the amount of new build by corporate developers over the past ten years amounted to no more than 5 percent of the total, with the unregulated self-build market by far the biggest force in new housing.
“We have got to have restrictions on self-build. It is impossible to compete with such an unregulated market,” El-Chaar said.
The drive toward entertainment and leisure as part of the Vision 2030 strategy is also a trend affecting property developers and architects. “All malls are being transformed into entertainment hubs. People will not be shopping at malls in such large numbers in the future with the growth of online retailing, so malls will have to become like the town center or the village square,” said El-Chaar.
Al-Sudairy thought there were more fundamental factors at work. “The main problem is demand, through the pressures of jobs and income. We cannot build houses if people cannot afford them, and we cannot build malls if people cannot afford to shop.”


Saudi minister Al-Falih says Aramco IPO likely in 2019

Updated 25 May 2018
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Saudi minister Al-Falih says Aramco IPO likely in 2019

  • Energy Minister Khalid Al-Falih: “We are ready, the company (Saudi Aramco) essentially has ticked all the boxes. We’re simply waiting for a market readiness for the IPO.”
  • Khalid Al-Falih: “Most likely it will be in 2019 but we will not know until the announcement has been made. All I could say is stay tuned.”

RIYADH: Saudi Arabia is most likely to hold the initial public offering (IPO) of oil giant Aramco in 2019, Energy Minister Khalid Al-Falih said on Friday, confirming a delay from the initial plan to list the company this year.

“The timing I think will depend on the readiness of the market, rather than the readiness of the company or the readiness of Saudi Arabia,” Khalid Al-Falih, who’s also the company’s chairman, said at the St. Petersburg International Economic Forum in Russia on Friday.

“We are ready, the company essentially has ticked all the boxes,” he said. “We’re simply waiting for a market readiness for the IPO.”

For almost two years, Saudi officials said the IPO was “on track, on time” for the second half of 2018. But for the first time in March they suggested it could be delayed until 2019.

“Most likely it will be in 2019 but we will not know until the announcement has been made,” Al-Falih said. “All I could say is stay tuned.”

The Aramco IPO would be a once-in-a-generation event for financial markets. Saudi officials said they hope to raise a record $100 billion by selling a 5 percent stake, valuing the company at more than $2 trillion and dwarfing the $25 billion raised by Chinese retailer Alibaba Group Holding Ltd. in 2014.