DEVELOPER INSIGHT
Dr Dia Malaeb, CEO, Emaar Middle East
How is the real estate sector driving forward economic growth?
The property and real estate sector is one of the key pillars in Saudi Arabia’s economic diversification initiatives. Investment in real estate and infrastructure are socio-economic growth drivers that create new jobs, support ancillary industries and, most importantly, meet the growing demand for homes. Some 70 percent of the real estate
market is residential, and housing demand has been led by the young and rapidly growing population. Short-term demand is also robust with demand expected to surpass supply by 50,000 units annually over the next four to five years.
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The mortgage law is one of the much-awaited pieces of legislation as it enhances the ability of a wider spectrum of customers to make a purchase of their choice
As its GCC neighbours bore the brunt of the global fallout, Saudi Arabia has enjoyed a certain degree of insulation due to the domestic-driven nature of its development pipeline. With nearly 60 percent of the population aged under 25 years old, and 1.5 million homes planned for the next five years, it has a strong local foundation for growth. This growth, however, is contingent on a number of factors, not least the long-running
issue of formalisation of the country’s proposed mortgage law, which will potentially usher in a new era of opportunity for prospective home-owners. With US$283.8 billion worth of pipeline projects - which represents 21 percent regional
market share - the overriding sentiment is that the Kingdom is in an enviable position. In December 2009, the government approved its largest-ever budget on record with forecast expenditure of SAR540 billion (US$144 billion) for the 2010 fiscal year, and the economy is projected to grow by about three percent this year. Foreign direct investment is also expected to grow 20 percent in 2010 according
to the Saudi Arabian General Investment Authority (SAGIA). In the last four years the Kingdom has risen from 67th
to 13th position in the World Bank’s ‘Ease Of Doing
Business’ Index and currently holds the number one position in the Middle East. Demand across all asset classes – particularly in the commercial and hospitality sectors – is also timetabled for expansion, with Jeddah and the holy sites of Makkah and Madinah leading the way. The economic cities model, being spearheaded by the Kingdom, remains a central
focus through major initiatives including King Abdullah Economic City (KAEC). The long-term phased project, which is scheduled for completion in 2025, and which represents a US$35 billion investment, continues to be one of the most important economic drivers for the country, presenting huge investment potential as well as job creation opportunities in a needy market. Saudi Arabia’s investment in its education sector is also boosting the construction
industry with projects under development valued at around US$20 billion, with the emphasis on delivering new high-tech university facilities. ➔
How have the mega projects under development been affected by the global situation, and has Saudi been insulated?
As a part of the global economy, Saudi Arabia too witnessed the unprecedented challenges of the global financial crisis. However, the Kingdom has demonstrated smart resilience with the mega projects in progress, led by the country’s vision to become one of the most competitive global economies. The government has been investing in infrastructure development projects, despite the global crisis, to further energise the economy by creating new job opportunities for Saudi nationals.
Looking mid to long-term, what is Saudi Arabia’s attraction versus that of its GCC neighbours?
Despite the challenges of the global financial crisis, Saudi Arabia is poised to grow at four percent in 2010 and the Kingdom recorded foreign direct investments of US$36.4 billion in 2009. A recent survey by AT Kearney said Saudi Arabia’s real estate sector offers some of the best investment opportunities in the world led by a strong housing demand, an attractive project pipeline and an expanding hospitality sector. The report placed the Kingdom fourth out of 50 markets in its 2010 Real Estate Global Opportunity Index, ranking among the most attractive emerging markets for investors. This presents an attractive opportunity for large-scale integrated developments that offer investment opportunities in sectors such as malls, hotels and leisure. The mega- developments also have a larger socio-economic role to play by creating new urban communities, ushering in new job opportunities and supporting the growth of ancillary industries. The Kingdom also has several master-planned communities that cater for the up-market demand for luxury villas that are preferred by Saudis.
1 KIng Abdullah Economic City, Jeddah 2 Al Wasl, Riyadh
Are there distinctly different drivers for the Saudi real estate sector?
The key driver for the Saudi Arabian real estate sector is the growing demand from its youthful population – more or less in line with demand projections across the
Middle East region. Some 80 percent of the Saudi population, growing at an annual 2.9 percent, is under the age of 39. The government is focused on meeting their growing demand for affordable luxury.
Will the impending mortgage law revolutionise the real estate market?
The mortgage law is expected to catalyse the property market, and will further boost demand for homes in the Kingdom. According to Kuwait Financial Centre, the demand for residential units in Saudi Arabia is expected to be in the range of 500,000 to 800,000 in the next five years. This demand is expected to increase by 50 percent due to the mortgage law that has been proposed. Emaar Middle East is developing high-
end, mixed-use lifestyle developments such as Jeddah Gate and Al Khobar Lakes across the Kingdom, and the response has been strong. The mortgage law is one of the
much-awaited pieces of legislation as it enhances the ability of a wider spectrum of customers to make a purchase of their choice. The Kingdom already has a clear set of guidelines in place for developers and customers, which has helped the property sector growth in the past years.
Are developers and lenders working together ahead of this to create strong financing vehicles and best practice?
Developers work with financial institutions on home finance decisions. A concerted action plan will be arrived at only after the Mortgage Law is enacted.
With the pressing need for affordable housing, will this area continue to be government-driven or is there new FDI potential?
King Abdullah bin Abdul Aziz Al Saud has underscored the need to strengthen public and private sector enterprises in order to to meet the growing need for affordable housing. This sector will be led by both the government and private developers including FDI-led projects.
How important is development of the tourism sector moving forward?
Tourism is another key segment in the diversification initiatives of the Kingdom, and will play a key role in driving economic growth as well as driving demand for the retail and hospitality business. This tourism can be GCC-led and will also include an emphasis on religious visitors as well as cultural tourists. The Emaar Residences at the Fairmont
Makkah, a key project of Emaar Middle East, focus on visitors to the holy city. Positioned directly on the Haram Plaza, the homes are located in the tallest tower within Abraj Al-Bait, and residents have the fulfilling experience of even viewing the Holy Kaaba from their homes, which are located on the top floors of the Makkah Clock Royal Tower hotel, a Fairmont hotel. The residences are available on a leasehold basis. Residents can also opt for a rental programme with Fairmont.
jun-sep 2010
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