Real Estate & Construction

Housing Program

After achieving tangible results in Phase I, the next phase of Saudi Arabia’s national housing program will be in full swing over the next few years, creating knock-on effects across the economy.

Saudi Arabia unveiled its nationwide housing program in 2018, as part of its Vision 2030, but state-sponsored housing took a new turn in 2021 when the Kingdom launched an updated plan for up to 300,000 new units to be delivered before 2025. Based on this new outlook, the government has come to regard the citizens’ access to housing as part a matter of strategic importance.

The most important thing that happened between 2018 and 2020, when the housing program was taken to the next level, was fixing the “financial mechanisms of the residential housing market,” according to Vision 2030. With finance becoming more accessible to young families, home ownership jumped to 60% by 2020 from under 47%.

This significant jump tallies with the government’s claim that a number of drastic steps have been taken in a short space of time: the regulations for real estate leading have improved, a new business model and set of practices have been adopted in the construction sector, and the supply of residential units has been ramped up to meet market demand.

The volume of real estate lending showed a six-fold increase between 2018 and 2020, and the figure continued to grow throughout 2021 and 2022—albeit at the more moderate pace of 41% YoY. The most important pattern in the lending market is that retail loans are now collectively larger than loans paid to corporate clients, meaning the Saudi finance sector is directly empowering end buyers. “Retail loans constituted 78% of real estate loans provided by banks in 2021 as part of the Housing Realization Program under Saudi Vision 2030 with a set target to increase home ownership for citizens to 70% by 2030,” according to Arab News.

The initiative has been largely unbiased, though to support low-income citizens, some 50,000 units were allotted to those under the protection of social welfare mechanisms. Such an approach is not without its risks. The experience of other countries that have pursued national housing programs have shown that state-sponsored housing developments can easily go wrong. If the residential units on offer leave a great deal to be desired and are clustered in certain areas, they can easily turn into problematic neighborhoods, causing further social disparities.

It seems, however, that Saudi decision makers have thought it through. Vision 2030 clearly points out that the new housing developments should not only be “affordable,” “high-quality,” and “safe,” but also “well-located.” The document goes even a step further and argues that the housing program “will become a critical driver of the urban transformation in the Kingdom since the shape, density, and connectedness of our cities rely on the housing sector.”

Urban transformation seems to be indeed underway. In September 2022, a SAR40-billion contract was signed between the National Housing Company and the Ministry of Municipal and Rural Affairs and Housing for the construction of “more than 150,000 housing units of varying sizes and designs, covering 11 cities in the Kingdom,” according to Arab News. The development program will make room for 750,000 new residents in Saudi Arabia’s 11 largest cities, including Riyadh and Jeddah.

The Kingdom’s housing initiative has had a great impact on the job market, with up to 38,000 direct jobs estimated to have been created in the first phase of the program (2018-2020), to say nothing of the knock-on effect the campaign has had on various Saudi economic sectors. Many private-sector contractors from across Saudi Arabia have been engaged in the development projects. “2021 has been one of our best years recently,” says Eyad Al Bunyan, CEO of Alargan, a construction company. He further told TBY the company’s “major priority in the next six months is to deliver our product on time to our customers.”

Considering that the program contributed as much as SAR115 billion per year to the GDP in Phase I, it is bound to have an even- more noticeable impact between 2021 and 2025, when the second phase of the project will be in full swing. In this view, the Kingdom’s housing program is clearly kickstarting a period of economic growth in addition to sorting out the nation’s housing sector.

Given the easy availability of finance and construction companies to do the job at a reasonable price, the Kingdom’s housing initiative is likely to go strong in the foreseeable future. Many construction companies directly or indirectly involved in the implementation of Vision 2030 are already fully booked for 2023. “We will be busy in 2023 in terms of construction and planned projects already approved in 2021 and due for implementation by the end of this year and the beginning of 2023,” says Ibrahim Al-Alwan, CEO of Al Akaria—another Saudi construction company.

The only challenge for the sector, as Al-Alwan correctly puts it, will be “cost control.” As such, Saudi real estate companies are well advised to “deliver the projects by minimizing cost increases arising from the current global conjuncture. Overall, though, we believe in the market, and that the economy is helping deliver demand,” finishes Al-Alwan.