Housing remains a burning issue, with a significant ripple effect across every other facet of citizens' lives, including employment and education, according to Jeddah-based Capitas Group International.
An affiliate of the Islamic Corporation for the Development of the Private Sector, Capitas on Saturday released a report "Addressing Saudi Housing Challenges: The Need for a Holistic Approach," which focuses on the key challenges facing developers in the Kingdom.
It highlights the role of public and private partnerships, and outlines potential solutions to ease development constraints. The report identifies rising land price as the largest obstacle to bringing housing stock, particularly affordable housing, to the market.
Tariq Hameed, senior vice president, Capitas, said: "The market needs to see increased activity in terms of development of affordable housing on the supply side as well as a widened range of financial solutions to support such developments for construction as well as end-user home finance. There is therefore a pressing need for an increase in capacity and capability of existing developers as well as the emergence of a new breed of developers from within the real estate value chain, both locally as well as through creating synergies with international players."
Developers across the Kingdom have made it clear that the rising land prices are the largest obstacle in developing affordable housing. Referring to a recent Samba Financial Group real estate report, Capitas stated that the average asking prices for land in Jeddah and Alkhobar rose 18.3 percent and 20.2 percent respectively in 2010. In north Riyadh, land prices have jumped an average 29.3 percent from a year ago. On an annual basis, east Riyadh land prices were up an average of 14.3 percent. As a result 70 percent of existing housing projects target households in the top 10 percent income bracket.
"The combination of high land prices and a shortage of smaller sized units has exacerbated the housing problem," said Wahid Sarij, executive vice president of Capitas.
"Our research shows that the prices of smaller villas are growing faster than those of larger ones. Developers in Jeddah, for example, confirmed that 350 sq m villas that were sold at SR900,000 six months ago, are now generally being sold in excess of SR1.2 million," he said.
The government's 9th Development Plan forecasts a need for 250,000 units annually, of which only a small proportion is being supplied by developers, adding to the existing estimated shortfall of around 1 million units.
"While there is a genuine social, economic and cultural desire among Saudis to own their home, affordability is the main constraint. With 60 percent of the population under 30 and escalating price of homes, ownership proportion may reduce further as new cohorts add to the population of renters instead of buyers," Yahya Aleem ur Rehman, vice president, Capitas, said.
On the supply side, he said, the availability of affordable housing units is what is keeping even those with loans and savings from getting on to the housing ladder.
Capitas points out that another key impediment to increasing housing supply is a lack of access to construction finance from banks. According to Capitas' estimates, 60-70 percent of affordable housing stock will need to be developed by small-sized developers, who are unable to meet the capital and collateral requirements necessary to qualify for bank financing.
"Right now banks in Saudi Arabia are not very receptive to providing construction finance for these smaller players," Sarij said, adding that projects under SR100 million are not on the banks' radar.
Customer demand can be enabled by creating purchasing power through financing, allowing consumers to pay in installments instead of an unaffordable lump sum payment. Interest from the financial sector in this arena along with the implementation of the much-awaited mortgage law is expected to alleviate some of the pressure in this respect.
Hameed said: "Regulation is fundamental to the mortgage system. Over regulation through stringent oversight, impractical standards and inconsistent procedural requirements can stifle the industry. At the same time, overly relaxed regulatory standards can lead to an unstable real estate market with far-reaching economic repercussions. By delivering balanced regulations that recognize the business needs of financiers and protect consumers against potential abuse, policymakers can set the industry on a successful course for years to come."
The report points toward a shift in the local developer mindset from focusing on just building homes to undertaking sustainable master planning models that provide holistic solutions by incorporating homes, schools, parks and commercial buildings together in one project.
According to Capitas, a move to sustainable, community based models of development will allow developers to meet the needs of Saudi citizens while maintaining margins on the overall development through creation of multiple income streams. This can be achieved through the incorporation of commercial real estate elements as well as middle-income homes into development projects.
"The intricate community planning, efficient and inclusive design, and ongoing asset-maintenance focused on integral to community-based master planning requires expertise that is currently lacking in the Saudi marketplace," said Naveed Siddiqui, CEO of Capitas.
In order to fill this void in the Kingdom, Capitas has formed strategic relationships with global technical experts who have successfully undertaken large-scale community building projects overseas.
"We have been very careful to choose the right partners having experience in younger markets that exhibit some of the same characteristics evident in the Saudi marketplace," Siddiqui said.
