Saudi housing market facing mid-income unit shortfall

The majority of the population is looking at a more serious shortfall, one which demographically must be addressed before a major housing shortage is realised.

The governments' housing demand forecast for 2009 shows that apartments, or one floor in a villa, is double that anticipated for whole villas.

In Riyadh, the figures show 16,170 extra apartments or self-contained apartments within a villa will be needed this year, compared with 8,396 single family occupancy villas.

The Eastern Province figures reveal a similar story, with demand for 4,812 apartments forecast, compared to 2,907 villas.

Figures from the Economy and Planning Ministry show that 65% of the Saudi population are of working age - between 15 and 64 - while those under 15 years of age comprise 32%. Just 3% of the population are over 64.

Population estimates from the Ministry forecast that the current population of 27.5 million will reach 33 million by 2020.

One million unit shortfall

By 2012, the kingdom can expect a shortfall of one million housing units according to the recent Mena House View 2009 by real estate service company Jones Lang La Salle. 'This demand for new space is not currently being matched by the supply of quality residential accommodation and affordable prices,' says the report.

A report by CB Richard Ellis, published in April 2009, claimed that land prices in Jeddah rose by 100% in the past two years, primarily due to trading in land, rather than development. As a result, more than 60% of Saudi households are now unable to afford to buy their own homes, it says.

Such figures reveal the strain which is being placed on the housing sector. This is being compounded further by the lack of financial process in place that would enable the lower-middle class access to capital. The mortgage law in particular remains key to the kingdom's progress.

Imad Damrah, country director for consultancy and valuation for Saudi Arabia at global real estate adviser Colliers International, warned that changes were necessary if a major housing shortfall is to be avoided.

'Currently, the country's housing sector as a whole is undersupplied as developers clamour to tap into Saudi Arabia's vast residential potential.'

Major challenges

'Real estate developers face several major challenges when building a residential development in the kingdom; the lack of financing scheme that equips the major public with the capacity to purchase their own housing units, stringent rules on foreign ownership and the government's current ban on real estate developers pre-selling their units prior to delivery.

'With no clear indication as to the implementation of the mortgage law, recently approved by the Shura council, developers continue to show bias on high and mid-end residential developments that target buyers that have cash-on-hand purchasing power, despite clear indications that a larger proportion of demand for housing stems from the mid-to-low income brackets.'

Some examples of the high-end development include Dubai's Limitless, which is currently delivering a SR40bn 14-square kilometre project known as Al-Wasl. When finished it will house 200,000 people in 55,000 homes, together with offices, hotels and more than three square kilometres of open space. There is also the SR9bn Ajmakan project, a gated community being developed in Riyadh, led by the local Land Holding Real Estate & Development Company.