Reform wave primes the pump on Saudi Arabia property investment

Reits, tax changes and a building push lift sector’s appeal.

A Riyadh cityscape. Saudi home-building plans may create investment opportunities not seen in decades. Waseem Obaidi / Bloomberg
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Property brokers in Saudi Arabia are predicting a surge in ­investment in the kingdom as the government pushes ahead with plans to tackle a housing shortage.

Brokers say that plans to introduce Real Estate Investment Trusts to Saudi Arabia, the “white land” tax penalising property speculation and an ambitious house-building programme aimed at getting more ordinary Saudis into homes could create investment opportunities for domestic and foreign investors not seen in decades.

“At Colliers we have been 20 years at this, and honestly we can see the difference,” said Imad Damrah, the managing director of Colliers’ office in Saudi Arabia. “What I’m telling you now is what we are seeing every day. We are talking to investors and to landlords and they can see that there is a political will to change things, which will translate into huge opportunities in the Saudi property market.”

House building forms a key plank of the National Transformation Plan of deputy crown prince Prince Mohammad bin Salman, which aims to reduce the country’s dependence on oil and to more than triple its non-oil revenue to 530 billion Saudi riyals (Dh519bn) by 2020 from 163.5bn riyals.

The plan, drafted with the management consultant McKinsey, includes a target to increase the contribution of the property industry to the country’s GDP to 10 per cent by 2020 from 5 per cent today – equating to about US$74.8bn.

More importantly for many Saudis, though, is the plan to increase the percentage of families owning their own homes to 52 per cent by 2020 from today’s 47 per cent.

To do this, the report promises to reduce the cost of housing from what averages out to roughly 10 times gross salaries to just five times by the year 2020.

“The population has grown by nearly 250 per cent over the last 35 years and the number of housing units has been rising by just over 100,000 a year in that period,” said Faisal Durrani, the head of research at Cluttons.

“Given the bubbling housing deficit, clear goals and a vision such as the one set out in the National Transformation Plan help to crystallise the government’s goal, and this will likely boost sentiment in the region, while in turn encouraging developers to play a bigger role in what is arguably an increasingly lucrative market for house builders.”

Stefan Burch, the head of Knight Frank’s Saudi Arabian ­office, agreed.

“We believe that in the short to medium term, the Saudi Arabian real estate market will become more transparent, more efficient and more attractive to investors on the back of these new initiatives,” he said.

“Increasing home ownership, boosting the contribution to non-oil GDP of real estate financing and reducing the time taken to approve residential real estate projects are vital steps towards making the local market more efficient and attractive to investors. However, these initiatives form part of a wide-ranging programme of reform that will be taking place over the coming two decades and as such the success of individual policies, such as those relating to real estate, will to a degree be reliant on the implementation of policies across a number of ministries.”

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