Growth but challenges ahead for Saudi real estate sector

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

Growth but challenges ahead for Saudi real estate sector

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.”


Digital banks in Saudi Arabia to reduce costs and stimulate competition — SAMA

Digital banks in Saudi Arabia to reduce costs and stimulate competition — SAMA
Updated 40 min 56 sec ago

Digital banks in Saudi Arabia to reduce costs and stimulate competition — SAMA

Digital banks in Saudi Arabia to reduce costs and stimulate competition — SAMA
  • The new lenders will rank 12th and 13th in the Kingdom in terms of capital

RIYADH: Digital banks licensed in Saudi Arabia will help improve the quality and user experience for customers in the Kingdom, supporting innovation and reducing costs, said Yazeed Alsheikh, director for general of banking control at Saudi Central Bank (SAMA).

This will directly contribute to stimulating competition with local banks and financial technology companies, he told Al Eqtisadiah paper.

The Saudi Cabinet gave its nod to the Kingdom’s finance minister to issue licenses for the country’s first digital banks, STC Bank and Saudi Digital Bank, the Saudi Press Agency (SPA) reported on Tuesday.

STC Pay will be converted into a local digital bank, STC Bank, with capital of SR2.5 billion. A second lender, Saudi Digital Bank, will be formed by investors led by Abdul Rahman bin Saad Al-Rashed and Sons Company with capital of SR1.5 billion.

There is a difference between financial technology companies and digital banks, Alsheikh said.

“The financial technology companies are based mainly on innovation in the use of technology for a specific activity, and providing a specific financial product or service to the target segment of beneficiaries, through digital platforms or smart applications,” Al Sheikh said.

“Digital banks’ concept is broader and more comprehensive in providing Integrated banking products and services, such as accepting deposits, financing and other banking services through digital channels exclusively, and have different regulatory and supervisory requirements,” he said.

The two new digital banks in Saudi Arabia will rank 12th and 13th among the national banks operating in the Kingdom in terms of capital, once they obtain the final license to operate.


Suspected cases of corporate collusion in Saudi Arabia surge in 2021

Suspected cases of corporate collusion in Saudi Arabia surge in 2021
Updated 25 June 2021

Suspected cases of corporate collusion in Saudi Arabia surge in 2021

Suspected cases of corporate collusion in Saudi Arabia surge in 2021
  • Cases investigated rises to 86 in 2021 from 55 in 2020
  • Value of cases more than SR1 billion

RIYADH: Cases of suspected collusion in tenders being investigated by the Saudi General Authority for Competition (GAC) rose to 86 in 2021, up from 55 last year and 15 in 2019, Al Arabiya reported.

The value of projects being investigated in the Kingdom amounted to more than SR1 billion ($267 million), Abdulaziz Alzoom, governor of GAC, said in a statement.

In a previous statement, GAC said it had started investigations, research and gathering of evidence with a number of establishments, based on communications it had received from other authorities, and complaints from individuals and companies.


Oil prices rise further on tight supply outlook, eyes on OPEC+

Oil prices rise further on tight supply outlook, eyes on OPEC+
Updated 25 June 2021

Oil prices rise further on tight supply outlook, eyes on OPEC+

Oil prices rise further on tight supply outlook, eyes on OPEC+
  • U.S. infrastructure bill brightens demand outlook - analysts
  • OPEC+ meeting on July 1, seen cautious with easing output cuts

SINGAPORE: Oil prices climbed for a third straight session on Friday, on track for a fifth consecutive weekly gain, as demand growth is expected to outstrip supply on bets that OPEC+ producers will be cautious in returning more output to the market from August.
Brent crude futures rose 6 cents, or 0.1 percent, to $75.62 a barrel at 6:46 a.m. GMT, heading for a 2.9 percent jump for the week.
US West Texas Intermediate (WTI) crude futures were up 5 cents, or 0.1 percent, at $73.35 a barrel, headed for a 2.4 percent weekly gain.
Both benchmark contracts settled at their highest levels since October 2018 on Thursday.
“Expectations of tightness in global market is the major factor supporting crude oil as demand is recovering while OPEC+ has constrained supply and US stocks are falling,” said Ravindra Rao, vice president for commodities at Kotak Securities.
Oil also got some support on Friday as the approval of US infrastructure bill boosted optimism for energy demand outlook, analysts said.
All eyes are on the Organization of the Petroleum Exporting Countries, Russia and allies — together called OPEC+ — who are due to meet on July 1 to discuss further easing of their output cuts from August.
“(The market) certainly has momentum behind it...It’s really in the hands of OPEC+,” said Commonwealth Bank commodities analyst Vivek Dhar.
On the demand side, the key factors OPEC+ will have to consider are strong growth in the United States, Europe and China, bolstered by vaccine rollouts and economies reopening, offset by rising COVID-19 cases and outbreaks in other locations, analysts said.
“I think OPEC+ will carefully calibrate production hikes from August onwards to meet rising demand without causing significant price fluctuations,” said Margaret Yang, a strategist at Singapore-based DailyFX.
“The market has likely priced-in an August hike in advance,” she added.
ANZ analysts have predicted OPEC+ would step up supply with a small increase of 500,000 barrels per day in August, adding to the 2.1 million bpd they agreed to return to the market from May through July.
The prospect of sanctions being lifted on Iran and more of its oil hitting the market anytime soon has dimmed, with a US official saying “serious differences” remain over a range of issues over Iran’s compliance with the 2015 nuclear deal.


Iraq, UAE’s Masdar sign solar power agreement

Iraq, UAE’s Masdar sign solar power agreement
Updated 25 June 2021

Iraq, UAE’s Masdar sign solar power agreement

Iraq, UAE’s Masdar sign solar power agreement
  • 2,000 MW of solar to be built according to agreement
  • Cost of deal undisclosed by Iraqi Oil Ministry

DUBAI: The Iraqi electricity ministry signed with Masdar, a United Arab Emirates-based renewable power developer, an agreement to build solar power projects in central and southern Iraq, with a total capacity of 2,000 Megawatts, the Iraqi oil ministry said on Thursday in a statement.
The project is the biggest investment in Iraq’s renewable energy industry, the statement said, without indicating its total cost.
Iraq is planning to build a number of power plants in the coming years in partnership with international and Arab companies. Some will use solar energy, while others will run on fossil fuels, including gas that is produced during the extraction of oil, by introducing it into the electricity production system, Iraq Oil Minister Ihsan Abdul Jabbar told Asharq recently.


Lebanon caretaker PM approves financing fuel imports at weaker exchange rate

Lebanon caretaker PM approves financing fuel imports at weaker exchange rate
Updated 25 June 2021

Lebanon caretaker PM approves financing fuel imports at weaker exchange rate

Lebanon caretaker PM approves financing fuel imports at weaker exchange rate
  • Lebanon is in the throes of a financial crisis described by the World Bank as one of the deepest depressions of modern history
  • Lebanon’s central bank asked the government on Thursday to provide it with a legal basis to lend it foreign currency from its mandatory reserves to fund the subsidised fuel imports

BEIRUT: Lebanon’s caretaker prime minister on Friday approved a proposal to finance fuel imports at the rate of 3,900 Lebanese pounds to the dollar, instead of the previous 1,500 pound rate, amidst worsening gasoline shortages.
The weaker exchange rate, which will effectively decrease the subsidy on fuel, is expected to raise the price of gasoline for consumers but enable the government to supply fuel for a longer period of time.
Lebanon is in the throes of a financial crisis described by the World Bank as one of the deepest depressions of modern history. Fuel shortages in past weeks have forced motorists to queue for hours for dribbles of gasoline.
Lebanon’s subsidy program, introduced last year as the country’s economic meltdown translated to harsher living conditions, covers basic goods such as wheat, medicine and fuel and costs around $6 billion a year.
Half of that amount is spent on fuel.
Lebanon’s central bank asked the government on Thursday to provide it with a legal basis to lend it foreign currency from its mandatory reserves to fund the subsidised fuel imports, an indication that the bank has all but run out of reserves.
Mandatory reserves — hard currency deposits parked by local lenders at the central bank — represent a percentage of customer deposits and are usually not drawn upon except in exceptional circumstances, with the correct legal permission.
Lebanon’s foreign currency reserves stood at slightly more than $15 billion in March. The Central Bank has not given an updated figure since then.