HOUSING
FACING THE CHALLENGE
A strong economy coupled with high internal housing demand provides good opportunities for developers in the Kingdom. When it comes to consumer expectations however, it seems that developers are yet to realise how to manage consumer demand.
s the Middle East’s biggest country in terms of geographical area, the Kingdom of Saudi Arabia is also the world’s largest exporter of oil and one of the wealthiest countries in the region. Te majority of the population resides in Riyadh, the financial, government and administrative centre while Jeddah is the country’s second largest city and contains half of Riyadh’s population. Te Saudi economy is driven by energy and industry which make up
A
around 60 per cent of the country’s GDP. Oil is the core driver of the Saudi economy, contributing just under half of the Kingdom’s GDP and over 90 per cent of exports. Te government is seeking to expand its oil and gas sectors but also
attempting to diversify the economy, particular towards manufacturing and services. In 2005, Saudi Arabia joined the World Trade Organisation (WTO) to attract foreign investment. In 2006, the government began construction of the $86 billion King Abdullah Economic City (KAEC) with the aim of revitalising the economy and attracting investment. Located approximately 100 kilometres north of Jeddah, KAEC will be the first place in the Kingdom allowing foreign nationals and companies to own property; the project is expected to be completed in 2025. In the same year in Madinah, the $8 billion Knowledge Economic City (KEC) was launched in order to create global investment opportunities. Te project will include residential, hotel and retail outlets and will house a population of 120,000 once completed in 2020.
Consumer demographics According to the DTZ Jeddah Hotel Market Q1 2012 report, Saudi Arabia’s population has grown more than eight times since the 1950s and is expected to reach over 27 million in 2012. Te total labour force in the Kingdom is expected to grow from 7.3 million in 2010 to 9.2 million in 2015, a 26 per cent increase, while labour force growth over the next five years is expected to average 4.6 per cent per annum. To stay in line with the country’s growth, the government estimates that the Kingdom will need 1.2 million residential units over the next five years. According to Raeyd Al Dakheel, CEO of Mawten Real Estate Company in
Masharef Development
Riyadh, “Saudi Arabia presents the biggest opportunities for developers in the region due to the economic strength and the internal demand.” However, this opportunity also highlights an issue with regards to matching consumer expectations when it comes to housing, Al Dakheel points out. “Te expectations of Saudi families are too high; most families want units of the size of 400 square metres while they can only afford 160 square metres,” he said at the Middle East Real Estate Summit in Abu Dhabi last month. Khaled A. Tash, Vice President of Marketing and Sales at KEC in Madinah
believes that there is an urgent need for developers to understand Saudi consumers’ expectations with regards to housing. “Tere is a huge gap between customer expectations and supply (size, price and quality) today, which suggests that developers are not able to figure out the real customer needs, and decide to build what they are used to build,” he said. “Today, big developers of master-planned communities choose to
continue developing high-end products that very few customers can afford. Tey end up either struggling to sell, or sold to speculators who do not create sustainable value. On the other hand, small developers of mini-scale projects continue to develop very low quality products without
26 I CITYSCAPE I JUNE 2012
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