Saudi Real Estate offers value and opportunity for investors

Saudi Arabia is unique in the Gulf in that it has a large and under-provided domestic market, and the bank estimates that the country will need one million new homes by 2014.

Having analysed the statistics and trends, HSBC believes that 'the Saudi property market offers some of the strongest fundamentals in GCC.'

The bank's MENA equities research team has initiated coverage of the sector with a report on Al Akaria, which it recommends investors are overweight in their portfolios, and Dar Al Arkan, to which it assigns a 'neutral' rating.

In a comprehensive report on the sector, HSBC's team conclude that Saudi Real Estate merits investment because:
• The shortfall of new homes required is unlikely to be met, meaning prices and rents will continue to rise
• The Kingdom's young population is set to expand
• The average number of people living in each dwelling is expected to continue to fall
• Homes remain relatively affordable in the Kingdom, compared to other Gulf countries.

The report does not ignore risks: The slowing global economy will have an impact on Saudi, and the bank predicts property prices and rents to decline by 15% in 2009 in certain areas; but HSBC's analysts see the country's fundamentals as being stronger than the risks, and recommend Al Akaria for its zero leverage, steady cash flows, and strong government ties.

International institutions have been able to invest indirectly in Tadawul-quoted stocks since summer of 2008, and since then HSBC has been instrumental in bringing the Kingdom to the attention of investors around the world. The bank now publishes comprehensive coverage of listed companies in a range of sectors, including cement, industrials, petrochemicals, telecommunications, banks, and consumer.

These are now joined by the real estate sector. Through its relationship with SABB, the bank is also one of the market leaders in brokerage and administration for investors on the Tadawul.

"These are interesting times for investors looking at Saudi Arabia. The Kingdom looks set to emerge from the credit crisis in better shape than many other emerging markets, and we remain positive towards the prospects for the Kingdom's listed companies,"

said Raj Sinha, Head of Equity Research, HSBC Saudi Arabia.

HSBC was the first international bank to establish an investment banking operation in the Kingdom, and is now the largest and most widely represented international bank in Saudi.