MORTGAGE
“Generally speaking, land prices are driven by the expected return from
developing that land. For developers targeting a 30-35% return, land prices are the key determinants of return. In a 2009 survey by the High Commission for the Development of Riyadh, developers ranked cost of land at the top of the list when asked why many investors shy away from investing in residential developments. Land prices ranked 6th in the 2006 survey,” the 2011 NCB Affordable Housing Report said. Another issue is the lack of land supply. According to the NCB report, as of 2009, undeveloped land comprised 77% of the total land area in Riyadh, while developed land was just 14%. Te majority of land is owned by a small number of large investors who hold it for years, do not develop or sell the land to third party developers so in effect, artificially reduce the land available for development in the city. Lastly, “the slow and bureaucratic process of various real estate related
agencies hinders the development of housing facilities,” NCB said. Private developers are faced with many obstacles; from obtaining permits to bearing the large cost of developing the basic infrastructure.
Public Private Partnerships – a solution? When looking at the question of the provision of affordable housing, Public Private Partnerships (PPPs) could provide potential solutions, researchers believe. NCB explains: “PPP involves the interaction between a governmental agency and a private entity. In such cases, the private body provides the government with a project for which it receives financial, technical and/or operational services from the government.” In the MENA region, Morocco is currently the only example where PPPs
have worked well with regards to the development of affordable housing, according to the 2011 Jones Lang LaSalle report on Affordable Housing
in MENA. Here, the government launched a programme six years ago by offering land at a reduced price to developers for the construction of housing units. To qualify for subsidised land, developers must agree to sell flats below a certain fixed price on two thirds of the land while on the final third, they are allowed to build other types of properties. “Tere are a number of factors that explain why these PPP arrangements
have worked well in Morocco, these include the ability of the government to offer subsidised land and tax breaks to make affordable housing projects more attractive to private developers. In other markets, the government has less scope (particularly in relation to tax breaks) and this has reduced the interest in this sector,” JLL said. In Turkey, the government has also utilised a form of PPP to deliver mass housing projects through TOKI (Housing Development Administration of Turkey) with a pioneering model that could be adopted and applied in other markets in MENA, according to JLL. But is the Moroccan or Turkish model transferrable to Saudi Arabia?
According to NCB, a precondition for the success of PPP arrangements with regards to the delivery of affordable housing units seems to be the provision of land by the government to private developers. With regards to Saudi Arabia, this would be the key step required in order for PPP projects to work. “Te government has already taken decisive action to tackle the problem
by injecting SAR 250 billion into affordable housing and now it is up to the private sector to accommodate the demand. A collaboration between the private sector and the government will be the most effective approach to meet the increasing demand in a record time,” said Bassam M. Boodai, MD and CEO of Jenan Real Estate Company at the Cityscape Connect Alkhobar Business Breakfast last month l
14 I CITYSCAPE I JUNE 2012
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