Saudi Arabia’s property market comes full circle

Saudi Arabia’s real estate sector presents significant opportunities for foreign investors, a forum at the ongoing Cityscape Abu Dhabi was told.

The Kingdom recently introduced new mortgage law and this new regulatory change has continued to actively stir up investor interest from abroad, said Philippe Daub Pantanacce, a senior economist for Mena at the Standard Chartered Bank.

“As the country is trying to diversify its economy away from oil, it has embarked on a major plan to expand its infrastructural networks and build economic cities, which have generated a lot of foreign interest,” the banker told Alrroya.com on the sidelines of the forum.

During the business round table discussion that explored Saudi Arabia’s investment opportunities in the real estate sector, John Harris, the head of Jones Lang LaSalle, Saudi Arabia branch, said massive government expenditure on infrastructure projects and regulatory support have combined to stimulate the growth of property market in the Kingdom.

“Saudi will continue to see development and another reason people are getting excited about the country is because of the new mortgage law,” Harris said.

“Historically you couldn’t get a mortgage to buy a house so if the new mortgage law is passed it should open up a whole new market dynamic as developers will be looking to take advantage of the inherent demand for houses aimed at the local domestic market,” Harris said, quoting from a report released by his firm, Jones Lang LaSalle.

The report also shows that investors are relatively optimistic about the property markets of Saudi Arabia, due to the country’s “growing local population and a strong domestic demand base.”

Saudi’s 20 million people pushing housing demand

The Kingdom’s population of more than 20 million is the largest in the Gulf, thereby pushing demand for more housing. A top property developer from Riyadh told the forum that more than 50 private companies were licensed to sell and develop real estate in the Saudi Arabia last year.

In the Jones Lang LaSalle investor sentiment report, the Kingdom also scored highly due to its energy-rich portfolio and strong capital to support large scale infrastructure which is set to benefit from potentially higher oil and gas prices as the global economy recovers.

“Being the only Mena market to score highly on both of these drivers, investors expect Saudi Arabia to experience the strongest real estate performance over the next 12 months,” it stated.

A couple of key points from the study highlighted the reason why Saudi Arabia is increasingly becoming the hotspot for foreign real estate investors.

“The first is that investors are now looking at centres of high population where there is an indigenous demand or a large population that will drive demand going forward. This type of demand is considered important because it means less reliance on the global economic environment in terms of creating jobs,” it said.

“The second key attribute appears to be an emphasis on countries that have a strong underlying economic base such as the presence of hydrocarbons. If you take those two points and correlate those to the countries that are more interesting from an investment perspective, we see that Saudi Arabia remains the most interesting investment market in the Mena region. It has both a large and growing population as well as an energy based economy.”

Positive outlook for energy-rich economies

Whilst 30 per cent of respondents to the investor survey felt that Saudi Arabia would be the strongest performing market over the next 12 months, Egypt has gone up from 6 per cent to 13 per cent.

The markets which fall into the category of energy- rich economies and thus are perceived to have a positive investment outlook due to their financial strength are Saudi Arabia, Qatar and Abu Dhabi.

The general sentiment seems to be that the global economy is beginning to improve and so it would be expected that those markets which are more aligned to the global macro environment are likely to benefit from this improvement, the authors of the study said.

This statement was further supported by Ian Albert, the Regional Director of Colliers International - a corporate financial advisory firm - who said that latest research indicates signs of a potential overall rebound in the real estate market.

“Efforts to address the demand-supply dynamic are indicators of a maturing real estate market, but we are also seeing a shift towards newer regional markets,” Albert said.