SAUDI ARABIA - Real Estate & Construction
CEO, Saqifat al Safa
Mowaffaq Al Hashimy is CEO of Saqifat al Safa.
The market has recently been affected by an issue that not many are aware of. In January 2014, there were housing loan rights laws. This law was issued so people know the terms and procedures to obtain both land and a loan to build a house. Approximately 1.4 million people applied for the land loan that the government announced. Since then, the volume of land trade and real estate overall has started to decline, because 1.4 million family heads applied and 1.15 million were accepted. These people cannot buy land or houses in order to get this loan, so this triggered a decline in the volume of trading in real estate. Every time I talk to people about this they are unaware. According to statistics I have worked on obtaining from the Ministry of Justice, the overall fall in volumes since January 2014 to today is 48.6%. Over the last five months the overall market has fallen 18.95% compared to last year. Last year it fell 25% and the year before it fell 15.6%. The overall decline from the beginning of the fall and issue of the law of land and loan has fallen 48.6%. This fall is divided into two parts: the residential market and the commercial market. The residential property market has fallen 52.6% and the commercial real estate market has fallen 40.82% meaning that it has not fallen in price, it has fallen in the volume of trade.
Yes, there is an impact on both. Some of the commercial has housing in it and I would say half of the commercial if not more includes housing because there is commercial on the ground floor and residential on the upper floors. Statistics tell that 52.8% was allocated to housing and 40% was allocated to commercial. Of the land and loan applicants, we estimate that 7-8% of them used to buy and sell property. But those people have refrained from doing so because if they do buy something they will be ineligible for the land and loan. If we want the real estate market to boost again, the government should lean up on the turn where you cannot buy a house or land during the waiting period. If they allow people to buy and sell until they get the loan, then it will be ok. When they get the loan they can either get the loan without the land or if they have not purchased anything they can get both. This will boost the market incredibly.
Of course, we are sharpening our pencils for it. Many shopping malls, retail strips, and housing compounds will start rising. The owners of these projects will have to dispose of their land either by leasing or selling. They will have to be financed, so banks will have a big window for financing projects or people against collaterals. Some people have owned some of these parcels for 40 years and did nothing with them. They do not add value to the land and they are just keeping it there. Our children and grandchildren as well cannot own houses. They have to go farther districts to own a house. What the government is after is actually to make it fair for everyone and to create more reasonable prices.
When the government decided to launch the Haramain Railway between Mecca and Madina, it put its main station in a neighborhood called Al-Sulemania in Jeddah. We coordinated with the landowner and a fund to develop a large project adjacent to the station. The train station will require 17,000-20,000 hotel rooms within the first five years of operation. Mass transport always requires property around it. We have the only fully developed land parcel in that area of its size, 1.4 million sqm. When the project started, the development became a valuable proposition for the landowner. That is why the Fund was pursued and created, the project, and have started development. I spoke with many businessmen who want to pitch in and asked to be introduced to the project. It is an investment proposition that people need, and this land will deliver that to investors. There is a section for housing and I am sure any business type service will require B2B and B2C, which will also require residential services. I estimate 60% of the land development will be focused on commerce and hospitality and 40% will be focused on the residential market because right next to us is King Abdulaziz university and shopping malls. The area has many features and access routes to highways.
The government may announce that it wants to go to a higher spending scheme, but I doubt that will happen because oil prices have not yet stabilized at a favorable price. Even if they do, the government has a shortage of funds that it has to compensate for. The government has great amounts of cash on hand but this is sovereign type of wealth that has to be maintained. I think it is healthy to tighten the belt and look for ways to go about excessive spending and so on. The oil prices are not rewarding and cutting off the fat was done well by the government. I doubt it will go into a spending spree before 2022. If it cancels this clause for the land and loan that the government has announced in 2014 and allows applicants to buy property and still get the land and loan, there will be a big boost in the real estate sector. We are in the core business and see things from different dimensions because we always ask questions. We want to know the reason and I have not seen any company in real estate come up with an assessment. We came up with it on our own and there is nothing convincing. The government should lean upon that clause. I am sure everything will pick up again, which should promote more construction and more products to sell.