I looked at a piece of land here a few years ago and the guy wanted SR450,000 for a 600-meter plot,” said Omar as we sped north of Jeddah on our way to a dinner of freshly-caught fish in Dhahban, around 40-kilometers away. “There was absolutely nothing there. We drove on a dirt road for 20 minutes and when we stopped the owner of the land told me that two roads were going to be built near my land. And I replied ‘sure, I can see it now in 3-D!’” said Omar, laughing bitterly as he recounted this tale of absurd Jeddah land prices.
Tales such as Omar’s are nothing new, as the boom in land prices in Jeddah and Riyadh, fueled by speculation and buyers with deep pockets, have pushed prices up so high that only a small elite of Saudis can now actually afford to buy a plot of land in major urban centers to build a house on in which to live. Omar and his wife told me that they had looked all over Jeddah for a three-bedroom house and could not find anything suitable for under SR2.5 million! With that amount of cash you could buy a very good home in most parts of the world, and a bigger one too.
The problem that we face in the Kingdom is that a small handful of rich investors own large swaths of land and often keep them undeveloped, knowing full well that the value of their real estate holdings will continue to increase exponentially even if they do nothing to them. Unfortunately, this distorts the free market, causing land to become overpriced, especially since there is no land tax in Saudi Arabia.
In Brazil, landowners pay a yearly tax, and on urban land the taxes on empty lots are higher than on lots that have a building of some kind. Thus, just down the road from my house, there is a large lot with a tiny house on it, which stands empty, built by the owner in order to pay less tax. Perhaps, the Saudi government could consider implementing new development rules for land in urban areas and near big cities, such as the land north of Jeddah. They could give the owners of such land a deadline in which to develop the land or face some sort of penalty. After all, leaving empty tracts of land undeveloped for decades is not good for the economy, especially when it artificially boosts the price of land and keeps other buyers from being able to buy land because they cannot afford to do so.
The news that 621,000 Saudis have just qualified for state aid in housing loans through the ESKAN scheme of the Ministry of Housing is indeed encouraging. But more efforts need to be exerted. Many upper middle class Saudis continue to be priced out of the market, perhaps earning too much to qualify for government loans, but not making enough to afford those pricey villas in Jeddah, Riyadh and Alkhobar.
Saudi banks need to be encouraged by the government to offer more mortgage products, and to not take undue advantage of borrowers. Omar told me that some banks allegedly have mortgage loans contracts in which they have the right to recalculate the value of the mortgage if the value of the home or land it is on goes up during the period of the loan! I was surprised and appalled when I heard this.
Everyone always points out how homes are much more affordable in Dubai than in Saudi Arabia. The simple reason for that is that there are many more new houses and apartments being built there, proportionally speaking, every year than here.
We need many more real estate developers in the Kingdom. The market is thirsty for new apartment and home developments. Only then will land and house prices fall, and Saudis will be able to finally leave the black hole of renting.
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The writer is a Saudi journalist based in Brazil.
