Offering employment opportunities as well as living and community facilities will certainly help migration of people to the planned smart cities and ease the pressure on the Saudi housing market, says Alan Robertson, Jones Lang LaSalle’s CEO for Middle East & North Africa.

“The planned smart cities should also release land for regeneration in older city districts which, in turn, will make a valuable contribution to the housing supply,” Robertson told Arab News in an exclusive interview.

He said: “Generally, we expect continued high levels of activity and growth in all sectors of the Saudi market for the remainder of this year.”

These are highlights of the interview:

What’s your take on the overall Saudi property market in terms of growth potential, areas of opportunities and any challenges the market might face in near future and how the market is expected to perform in rest of 2014?

Generally, we expect continued high levels of activity and growth in all sectors of the market for the remainder of this year. The Saudi government is continuing to adopt expansionary economic policies with heavy spending on infrastructure (roads, ports, airports, schools, hospitals, etc). This will have a positive impact on demand for real estate.

Which are the cities that will drive the real estate growth in Saudi Arabia?

Riyadh, Jeddah and Dammam are the three major cities driving growth in the Kingdom. Sixty percent of the market for the major developments is concentrated in these cities. In addition, there will also be growth opportunities in the hospitality and retail sectors in Makkah and Madinah. There will be some minor opportunities in the secondary cities such as Jazan, Tabuk and Qassim.

How can Saudi Arabia cope up with the rising demand across the office, retail and hotel sectors in Riyadh and Jeddah?

While there is a rising demand in these sectors, there is also a considerable supply pipeline. In our view, the expected future supply will meet the rising demand for the above sectors.

Saudi Arabia’s housing shortage is legendary and the Saudi government has always kept low-cost housing in focus. Do you think the Kingdom can tackle the shortage through low-cost housing?

The Ministry of Housing is actively tackling this issue and recently signed contracts worth SR4 billion to develop around 40,000 residential units on 26 million sqm of land in eight developments across the Kingdom. In our opinion more could be done. For example, the government could enable more PPP (public private partnership) models and projects, and they could take steps to encourage the release of land for housing development.

What further steps government should take to ensure affordable housing?

There are a number of steps that government could take. For example, they could work to make government procedures more efficient and faster in order to accelerate the rate of development (such as securing municipality approvals). They could aid developments through financing or by investing in large-scale projects, or by providing infrastructure. They could also encourage additional finance to come into the industry by providing mortgage guarantees on owners’ loans to select partner banks or by enabling bank lending to developers.

What alternative strategies for encouraging housing development you suggest for Saudi Arabia?

One of the keys is to direct additional finance into the industry through the banking system and this is already happening to an extent. Bank lending to building and construction has increased by 13.9 percent in Q1, 2014 from the same period last year. This reflects greater participation in infrastructure and housing projects. The government could create incentives for developers or landowners to develop unutilized land in urban areas, and perhaps also penalize those who obstruct the release of land for development.

What would be the impact of mortgage law approval on the Saudi housing market?

It will improve the affordability and demand for housing. The mortgage law, prepared by the Ministry of Finance, has been in the planning stages for almost a decade. It was initially targeted to be approved toward the end of 2008. However, the swift enactment of 3 out of the 5 laws in early 2013 show strong initiatives from the government to make housing more affordable to its citizens as well as to bridge the gap in supply and demand. The new regulations will create a new mortgage financing and securitized industry, which is seen by many as a huge boost to the residential housing industry and to the economy as a whole.

Strong demand from Saudi nationals and the expatriate community has driven rental rate growth by 15 percent year-on-year. How do you think rising rents can be checked?

In our view, the key is to release more supply into the market through measures such as those which I have outlined above. The government could also provide some protection for tenants by introducing rental caps, which would restrict the amount by which a landlord could increase the rent. These have worked effectively in Dubai and are an important factor in the market there.

Do you believe the planned smart cities will ease pressure on the Kingdom’s housing market?

It is too early to say as smart cities are still in their initial stages. Offering employment opportunities, and living and community facilities will certainly help migrate people to those cities and ease the pressure on the housing market. It should also release land for regeneration in older city districts which will in turn make a valuable contribution to the housing supply.

According to some reports Dubai’s real estate prices have reached pre-crisis level. Do you agree?

I agree in part. Prices in some locations have reached the levels they were at in early 2008 but there are still a number of locations where that has not yet happened. Rents remain a bit lower than they were in 2008. Our recent analysis shows that rates of price and rental growth are slowing, and we believe that this is a good thing for the market.

What are your expectations for GCC housing market in 2014?

Generally, we expect the housing markets to remain buoyant and active across the GCC countries for some time. In Saudi Arabia, demand will continue to be driven mainly by Saudi nationals and the general demographic growth. In the UAE, the expat communities will continue to play an active role, alongside the Emirati

population.