RIYADH, 9 May 2006 — Real estate developers in the Gulf region expect booming sales to millions of Saudi investors who are abandoning crashing regional stock markets.
Dozens of local and foreign firms are presenting SR14 billion ($3.73 billion) worth of projects in Saudi Arabia and other regional countries at a real estate fair held in the capital Riyadh this week. For many of them, the timing could not be better.
For years, massive returns in booming Gulf bourses have taken the shine out of investment in Saudi real estate, but a painful meltdown in stock prices recently promises to put the sector back under the limelight.
“People have learnt the lesson: ‘Real estate is the pious son of investment’... They come to me and say ‘we want to save something for our kids’,” said Bandar Alhmood, director general of Riyadh-based Alhmood real estate marketing firm.
The Saudi bourse, the largest in the Arab world, has lost $380 billion or about half its value in a sharp correction since late February after years of rapid gains.
The bearded young entrepreneur opened shop four years ago just as the stock market fever started to spread among Saudis. “We had big hopes but things have not been as good as we expected them would be,” he said. “But people have now shifted their attention from stocks back to real estate. They would rather get 10-12 percent return than dream of 70 percent which may end in the red,” Alhmood told Reuters.
Alhmood’s firm is looking mainly at investors with a five million riyals portfolio. “Normally, they would invest half the funds on stocks and the other half on real estate. But now, because of the stocks decline, they will allocate 70 percent of their stock investment to real estate,” he said.
Abdullah Al-Majed, vice-manager of Tanmiyat Investment Group, said the decline in stocks has affected “every friend and relative”. “When the stock market was up all sectors flattened out... Stocks were synonymous with quick profit, but real estate is stable,” he said. Tanmiyat is investing $5 billion until 2009 in Saudi Arabia, Turkey and the United Arab Emirates.
Mahmoud Najem, marketing manager for Taswek development and real estate investment said the sector is set for a boom. “People come to us and say ‘stocks ruined us we want real estate’. I’m getting strong demand for our project in Makkah ... It’s in the holy sites and it’s real estate”.
Saudi real estate is estimated at SR1.5 trillion worth of investment, accounting for around half the total investment in the sector in the whole Gulf region. But industry sources say around 60 percent of Saudi real estate investment is motivated by speculation which has fuelled a doubling of land prices in a decade in some cities.
Also, only a fifth of the total investment is led by organized real estate firms, while businessmen complain of lack of involvement by authorities in organizing the sector and difficult access to mortgage financing. “It’s easier to get a loan for stocks,” said Alhmood.
Al-Majed said investment environment was more attractive in neighboring countries. “But developing real estate is a priority ... Saudi Arabia needs 4.5 million housing units by 2020 for the more than half of the population who are below 21 years of age,” he said.
Meanwhile, Saudi shares finished a volatile session slightly higher yesterday, but analysts said they doubted that the Arab world’s largest bourse was poised for a speedy recovery.
The bourse’s main index ended 0.28 percent higher at 11,376.89 points after spending much of the day in the black, hitting a peak at 2.9 percent up and falling by as much as 1.9 percent. It was the market’s first daily gain after 3 days of losses.
“The market is still struggling to find itself a clear pattern that would indicate that we are out of the woods,” a senior trader said.
Total turnover was SR15.42 billion ($4.1 billion) and was led by the largest listed company, Saudi Basic Industries Corp. (SABIC). Of the 79 listed companies, 66 rose and 11 declined.