SPECIAL REPORT

HOUSING THE GROWING POPULATION

OF THE KINGDOM OF SAUDI ARABIA
FEBRUARY 2013

www.kcorp.net

Prepared by KCORP for the Jeddah Economic Gateway

www.jeg.org.sa

30%

of Saudi population own homes,

global average 70%, UAE home ownership 45%

0.4 Million Shortage of households

Demand 2.7 Million; Supply 2.3 Million

1.0 Million homes to be created by 2015,

young and fast growing population, rapid urbanization and rising

personal income driving the demand

Challenges in Provision of Affordable Housing

Lack of mortgage system and low financing penetration

Lack of affordable housing

Shortage of arable land for affordable housing construction

Supply Demand gap

Rising land prices

Cultural and Infrastructural considerations

Resolving Housing Woes

Providing stimulus for affordable housing construction

Ninth 5-year Development Plan aims at investing
SAR 1.4 trillion on physical and social infrastructure
between 2010 and 2014
In 2011, royal decree announced allocation of
SAR 250 billion, to build 500,000 housing units
Package of spending measures amounting to
SAR 458 billion
Ministry of Housing plans implementation of program to
construct 200,000 housing units

Private financing
Mortgage market expected to reach SAR 86.7 billion
within 3 years of law being enacted

REDF, which provides low-cost loans to Saudis for home

purchases, had its capital boosted by SAR 40 billion,
thereby speeding up its loan approval process

Al Qurayyat

Arar
Sakaka
Northern
Jouf
Border

Tabuk

Jubail

Hail
Buraydah
Qasim

Yanbu

Dammam

Madinah

Hofuf

Riyadh
Jeddah

Eastern
Province

Makkah
Taif
Asir

Al Bahah

Abha

Najran

Jizan

Key Indicators KSA

Population in Million (2010)

27.1

Population between 16 to 64 years of age

66%

Area (Sq. Km.)

2,149,690

Nominal GDP 2010 ($ B)

448

Nominal GDP 2015E ($ B)

696

GDP CAGR (201015E)

9.2%

Per Capita Income (PPP)($)

23,701

Average Inflation (201015E)

4.6%

Fuelling demand for affordable housing

The housing market in the Kingdom of Saudi Arabia (KSA) continues
to expand on the back of high economic growth, favorable population
demographics, and increasing urbanization.

Economic growth and growing population will trigger

the need for affordable housing
Expected GDP Growth at Current Prices in KSA (201015E)
800

CAGR: 9.2%

700

$ Billion

500

621

560

582

2011

2012

2013

2014

19,890

20,214

21,101

21,920

600

696

658

448

400
300
200
100

Population & Age Group

Composition (200515E)1

24.4

25
20
15

66.6%

63.5%

10

27.4

CAGR
2.2%

67.7%

5
0
0-15

2005

16-64

CAGR: 2.2%

30.5

2010
2015E
65 and above

83.8%

30

CAGR
2.3%

Rate of Urbanization1

82%

Population (M)

35

2010

2011

Rate of Urbanization1
1. Source: UN population division, http://esa.un.org/unpd/wpp/unpp/Panel_profiles.htm

22,725

2012

2013

2014

91.4%

16,267

2015

89.4%

GDP per
Capita Growth

87.5%

2010

85.6%

2015

Housing Ownership Scenario in KSA

KSA has been benchmarked with similar
countries in terms of GDP, population and
income levels. Based on this comparison, only
30% of the Saudi population own homes, a
ratio well below that of most developed and
many emerging economies, while the global
average stands at 70%

Real estate consultancy

Colliers International believes
the home ownership market is
hampered by affordability
constraints, ongoing increases in
selling prices, and the shortage
in supply of new residential
units aimed at the lower and
middle income segments

Only 30% of the Saudi population own homes

Home Ownership Rate by Resident Population2
98%

75%

70%

70%

66%
30%

Singapore

Brazil

Turkey

US

Saudi Arabia

Global Average

Key Demand Centers for Housing

~66 % of the nations residents are clustered in three regions
Total Polulation by Provinces (million)3
6.9

6.8
1.9

1.8

1.4

1.2

0.8

0.6

0.5

0.4

0.4

0.3

Aseer

Madinah

Jazan

Qasim

Tabuk

Hail

Najran

Al Jouf

Al Baha

Northern
Borders

Dammam
(Eastern)

Riyadh

Jeddah
(Mecca)

4.1

2. Source: Zawya
3. Source: http://www.cdsi.gov.sa/english/

House ownership is still at a very low level in

these three cities.

According to the Ministry of

Economy and Planning, Riyadh,

Riyadh and Jeddah registered a household ownership of 33% and 34%

respectively, for the total number of households in those provinces. Household ownership for Dammam was higher at 40%.

Jeddah and Khobar account for

approximately 71% of total new
housing demand and are expected
to suffer from undersupply

% of Owned Households of the Total Households

in Three Major Cities4
40%

34%

33%

50%
40%
30%

6.8

6.9

1.2

Riyadh province
Total residing population

Jeddah (Mecca province)

Supply

The total inventory across Riyadh is roughly

900,000 housing units. Data from the Ministry of Economy and Planning and Ministry
of Municipal and Rural Affairs suggests annual residential completions in Riyadh will be
around 30,000 units across all sectors (villa,
apartment, social, compound etc.).
Many of the projects announced in 2008 (such
as Al Wasl, Ajmakan and Shams Ar-Riyadh)
have still not delivered any units and many are
now being restructured.
Small builders continue to drive the residential sector. There are a handful of professional
developers, but these do not account for developing more than 10% of Riyadhs annual
housing requirement.
4. Source: http://www.cdsi.gov.sa/english/

20%
4.1

0.6

Dammam (Eastern province)

10%
0%

% of owned households

Total number of households

Riyadh

1.3

The Government is taking action to increase

the supply of housing for Saudis falling in the
lower income bracket. In 2006 the Ministry
of Social affairs initiated a housing scheme to
build 66,000 units in different regions of the
Kingdom.

Demand

While most professional developers have been

providing houses priced at over SAR 1 million, the demand remains in the SAR 500,000
to SAR 750,000 range.
Expatriate residents now make up a substantial portion of the buying population in Riyadh, representing up to 30% of purchasers at
some new developments.

Foreign residents are typically allowed to buy

for their own occupation in locations approved
by the Ministry of Interior. There are some restrictions on reselling though.

Majority of New Housing Supply is in Luxury Villas

Key Residential Projects
(Completion Year)

Type

Housing Units

Blncyah (2010)

Residential villa

144

Canary Villas (2010)

Residential villa

82

384

Al Bayt 32 (2012)

Affordable
housing apartment

400

Al Ghorub (2012)

Multi residential units.

Apartment and villa

300

All luxury villas

3,189

450 villas, rest affordable housing

4,200

20% for large multi units for middle

income, rest for low cost housing

135

1,400

Sindad (2010)

Shams Al Riyadh (2013)

Nismat Riyadh (2013)
Al Dar (2013)

Manzel Qurtaba (2014)

Jeddah

Supply

Home finance is an important tool for enabling

affordability. For new community developments
mortgages are used to finance up to 40% of
sales. According to the notary public office in
Riyadh, between 3,000 and 4,000 mortgage
instruments are registered annually.

The Jeddah residential market remains dominated by small developers and individual owners, with the larger developers delivering just 2,010 additional units to the residential market in 2010. Future housing supply
is likely to be reduced as applications for planning permission and building permits are being reviewed with
extra scrutiny after the impact of the record rainfall and floods in Jeddah in November 2009. Development
of two gated communities targeting the expatriate sector have been announced in the Rawdah and Zahra
districts.

Majority of New Housing Supply is in Luxury Apartments

Key Residential Projects
(Completion Year)

Type

Housing Units

Lamaar Towers (2012)

Luxury apartments and offices

550

Affordable apartments for low

and mid income group and offices

6,000

Afsan Phase 1 (2014)

2,500

Diamond (2015)

300

Al Mada Tower (2015)

High rise luxury apartments

998

Shams Al Arous (2016)

Residential villas, apartment, offices and parks

10,000

2,500

Jeddah Gate (2013)

Awaan Project (2016)

At King Abdullah Economic City, the Bay La Sun apartments developed by Emaar have opened bookings
this year, most units priced at over SAR 1 million/unit. The next residential development within this project Hawadi is much more affordable, offering a range of apartments and duplexes targeted at the middle
income bracket, priced between SAR 250,000 and SAR 750,000. Large districts in the south east of Jeddah
have been set aside by the municipality for development of low-income housing. These areas will be needed
to accommodate the population that will eventually be resettled from the Khozama and Ruwais districts
that are to be redeveloped by public-private consortiums.

Demand

KSAs Ministry of Commerce estimates that formation of new households will result in demand for around
40,000 new housing units per annum over the next few years.

Eastern Province Dammam

Supply

The most dominant markets in the Eastern province are

Dammam, Dhahran and Al Khobar. The importance of these
cities is underscored by the fact that Dammam is the third
largest city in Saudi Arabia, and ARAMCO, the state-owned
oil company, is based in Dhahran.

The qua
lity of re
stock (r
sidenti
ecently
added o al
constr u
r un
cti
Al Khob on) in Damma der
m and
ar is hig
other ci
h
ties in th er than that of
e countr
higher s
y, d
tandard
of const ue to a
improve
r uction,
d finish
i
n
g
,
a
n
periodic
d
mainten better
ance.
Collie
rs Rese
arch

Key Residential Projects

(Completion Year)
Type
Murcia Apartments (2012)

Housing Units

78

Luxury villas

400

Masaken Homes (2014)

250

Dammam Hills (2015)

Villas for
mid to high segment

700

Abraj Al Salam (2015)

12 luxury villas, rest are

apartments for mid to low segment

850

2,100

Murjana (2014)

Khobar Lakes (2016)

Dammam, Dhahran and Al Khobar are increasingly being seen as one major unified city that is connected
by new residential and commercial developments, rather than three individual cities.
Dhahran is also expanding its residential developments near major thoroughfares such as the Prince Mohammad Bin Fahd Road in new districts such as Al Qusoor. Unlike Dammam which is dominated by large
developers, Dhahran is characterized by the presence of medium-sized developers. Khobar is expanding
mostly towards the south near Azizia Beach with medium-sized developers delivering most of the stock
Stark contrasts are observed between mid-scale developers operating in Dammam and Khobar and those
in Riyadh and Jeddah. Developers in Dammam and Khobar are more active with multiple ongoing projects
and have a higher number of units per project.
8

Demand

There is a preference for quality apartment developments in Dammam and Al Khobar. A fitting example
would be the Al Hamraa District (also commonly known as Shobily High Rise) in Al Khobar, which is a
prime location for quality apartments. Most home buyers in the district believe in the investment potential
of their purchases, particularly with the expected forthcoming completion of the Shobily Masterplan, which
has been on hold for several years.

Challenges in provision of affordable housing

Structural Factors

Lack of mortgage system and low financing penetration

Inadequate housing finance constitutes a major

challenge for the provision of affordable housing
in the country. Housing finance includes plot distribution, land servicing, and the provision of loan
and mortgage facilities through the banking system:
The much-debated Saudi mortgage law has been in
the pipeline for almost a decade. Market demand is
suppressed by limited mortgage availability. The law
aims to provide:
Better lending access to home ownership
seekers
Wider funding options for low and middle
income groups
The law has been recently approved and is awaiting ratification. This law also includes articles on

property repossession and asset liquidation in the

case of delinquencies. An extremely low percentage
of Saudi home purchases are financed by mortgages. Experts estimate that Saudi Arabia has only a
2% mortgage penetration in its real estate market.
Mortgages are difficult to obtain for those on low
monthly salaries due to the limitations of the mortgage market. Other obstacles include the restriction
of mortgage information, a dearth of innovative solutions, and an inadequate regulatory framework.
Moreover, borrowers have tended to treat extended
loans as charity and default on payments is high.
Bank financing is still relatively limited and out of
reach for a significant proportion of the population.
Real estate and construction loans accounted for 7.1
% of total bank credit in 2010 while home loans
were only 2.8% of total bank credits. This is very
low in comparison to other GCC countries.

KSA has Very Low Housing Loan Penetration Compared

to Other Middle East Countries

Morocco

Oman

UAE

KSA

15% 15.5% 15.9%

Kuwait

Algeria

12.2%

Tunisia

2%

Jordan

1%

7.2% 7.9%

Lebanon

0.5%

3.4%

Egypt

Housing loan as % of GDP (2010)

Access to housing finance has been tightly constrained with very little mortgage financing available. Some subsidized loans were available through the
Real Estate Development Fund (REDF), a state-funded entity. But they had
a very long waiting list, and loan amounts were not necessarily sufficient to
cover construction costs, says David O. Robinson, IMF mission chief
9

The Real Estate Development Fund (REDF), established in 1974, was set up to meet the needs and
aspirations of the Kingdoms citizens by helping to
raise the quality of life in society through the development of high quality housing.
In its first five years, the Fund fulfilled its major
objective by solving the housing crisis of the time
engendered by the Kingdoms extraordinary pace of
development.
The total loans disbursed by the Real Estate Development Fund (REDF) since its inception until the
end of 2006 amounted to SAR 134.1 billion.
Due to the absence of a mortgage law, the Real Estate Development Fund (REDF) is the main provider of home financing. REDF is not able to meet
the demand, which is increasing exponentially;
there are more than 650,000 applications pending
since the end of 2009, up from 450,000 in 2006,
mainly due to obstacles faced by REDF in collection of debts. This leaves an average earning household individual with no option but to live on rent
instead of buying his own property.

SupplyDemand Gap

In 2010, total demand for household units in the

KSA market was 2,700,000; but the total supply was 2,300,000, implying a shortage of 400,000
household units in the country.
However there is an oversupply of luxury houses
and villas. While most professional developers have
been providing houses priced at over SAR 1 million,
the demand remains in the SAR 500,000 to SAR
750,000 range. According to the Governments
9th 5-Year Development Plan, 1.2 million units are
needed over the next five years, (250,000 units every
year). NCB Capital estimates less aggressive figures,
predicting that the country will need an additional
973,000 units over 201015 and a total of 2.1 million units over the coming decade (215,000 units
per year).
The major driver of housing demand is the young
and fast growing population base, with an estimated
1,000,000 new households expected to be created
across KSA by 2015, which will further exacerbate
the current shortage.

Additional Demand of 1 Million Homes by 2015

6. Source: CDSI, NCB Estimates

10

7,080

31,874
5,718

27,137
4,643

23,981
4,208

22,674
3,991

2004
2007
2010
Total Housing Stock

37,551

Housing market size vs. Total population6

2015
2020
Total Population

Incremental Housing Demand vs. Investment Required6

SAR Millions

Units
350,000

180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
-

300,000
250,000
200,000
150,000
100,000
50,000
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

Annual New
Demand

Exorbitantly high prices for housing

Artificially high-priced land plots are increasingly

sought as a long-term investment option by high
net worth Saudis, making these plots inaccessible to
Saudi citizens and home developers. Though there
is a shortage of affordable housing, there is an oversupply of high end developments. Most developers
seek profitable luxurious projects to serve the high
income class.

Lack of available land for affordable

housing construction
Arable land is scarce due to drought, desertification
and land degradation due to which agricultural productivity and rural subsistence are threatened. Saudi
Arabia occupies four-fifths of the Arabian Peninsula but the majority of its land is desert. According
to the World Bank (2009), the percentage of land
that is arable in Saudi Arabia is only 1.5 percent of
the total land area. In such conditions, a land owner

Estimated Annual
Investment

prefers to hold on to
his land instead
Becaus
of turning it
e of the
strengt
market
h in th
for ser
into an afe
v
ic
ed plot
develo
pment
s, land
fordable
(rather
residen
than fu
tial dev
ll
elopme
popula
housing
nt) bec
r phen
ame a
omeno
This tr
n in rec
end is,
ent
develophowev
curbed
e
r, expec years.
by the
ted t
efforts
ment.
Munic
of the R o be
ipality
iyadh
Develo
and Ar
Moreopment
Riyadh
Autho
land pr
rity to
ices by
contro
ver, the
l
increas
supply
in
g
the
o
f land in
absence
the city
Collie
rs Rese
of fees on
arch
land owners
motivates owners
to hold on more to those
assets. However, it is expected that regulations on
imposing fees on empty plots of land are expected
to take effect soon. Many realtors in the Kingdom
believe that such regulations would help reduce the
prices of real estate units.

6. Source: CDSI, NCB Estimates

11

Rising land prices

Prices of develo
While government stimulus has helped launch the sector into gear,
pable
la
n
rising land prices have slowed down the momentum of building
d have been incr
easing at
affordable housing units. In fact, land prices are rising at a much
roughly 15% per
annum,
compared to a 5
higher rate than property prices.
6% increase in
prices for housi
ng units, says
John Harris of
Jo
nes Lang LaSal
Cultural and infrastructural considerations
le
Saudi nationals prefer to live in houses rather than apartments. Social
requirements such as privacy, social cohesion of family members within
the same housing unit, and independence from residential density are main factors considered for affordable
housing.
Location and public transport systems represent another challenge for affordable housing. Most projects
are usually built outside the boundaries of the city where land is cheaper and these places lack an adequate
public urban transportation system. The absence of transport disadvantages residents needing to travel to
work or school as not everyone has access to private cars.

Initiatives to mitigate housing woes of population

Government Stimulus Measures
Creation of new growth centers

Government is focusing on creating new growth

centers, away from Riyadh, Mecca and Dammam.
The Economic Cities Authority, a government
body, plans to develop Rabigh, Jizan, Madinah and
Hail as the new growth centers or emerging cities of KSA. Rabigh and Jizan are being developed
with infrastructure projects worth USD 27 billion,
Madinah and Hail are USD 7 billion and 8 billion
respectively. The KSA Government also supported
Emaar Economic City, the developer of the King
Abdullah Economic City in Rabigh, with an investment of USD 1.3 billion in 2011. By 2020 these 4
cities are forecasted to contribute USD 150 billion
to GDP and house about 4.5 million people.
KSAs growing economy, on the back of high oil
prices, has led to heavy investment in infrastructure including housing over the period 20052010.
The 9th Development Plan aims at investing SAR
1.4 trillion on physical and social infrastructure between 2010 and 2014.
12

In 2011, a royal decree was announced to allocate

SAR 250 billion to build
500,000
housing
King Ab
dullah
units under the
Econom
ic City
newly
estabin Rabig
h has cu
rrently
lished Miniscreated
12,000 j
obs
try of HousFahd al
ing. This will
Rasheed
,
C
hief exec
accelerate
u
t
ive,
King Ab
dullah E
the supply of
conomic
City
housing units,
especially to the
low and middle income groups
Saudi authorities have unveiled a package of spending measures amounting to SAR 458 billion that is
set to have a significant impact on economic performance this year and in the future. The extra-budgetary spending, announced by King Abdullah in February and March, is primarily aimed at improving
living conditions, particularly for those in the lower
income category.

Construction of new Housing

The biggest single element of the spending is SAR
250 billion to fund the construction of 500,000 new
housing units over an unspecified time period. In
order to construct this number of units in a reasonable timeframe, the authorities will need to use private sector developers.
In terms of providing affordable financing, REDF
will have a key role to play. REDF, which provides
low cost loans to Saudis for home purchases, had
its capital boosted by SAR 40 billion and has been
instructed to speed up its loan approval process

Arab News reported that the Ministry of Housing

plans to implement a program that will result in the
construction of 200,000 housing units. The ministry
said that 17,600 units are currently being implemented.

Private financing
In view of the cramped demand for housing and the
scale of the Governments plans, private financing
will also be necessary in addition to REDFs recapitalization. The mortgage market is expected to reach
SAR 86.7 billion within the next three years of the
mortgage law being enacted.

Alternative Solutions
Mortgages customized for low income
nationals
The aim is to provide mortgages to modest income
nationals who are currently locked out of the mortgage market due to low incomes and perceived sustainability of those incomes. This endeavor would
be structured as a hybrid between traditional charity
and a marketplace mortgage company that would
generally not consider lower income nationals as a
target market or would charge very high interest to
justify this perceived higher risk exposure.

Access the pool of high net worth Saudis

Route it through the mortgage company to provide
lower income nationals with long-term mortgages.

Solar power mud houses

This concept focuses on changing the types of houses
offered in the market by making home development
more economically scalable. The aim is to build traditional mud houses from cost-effective materials
using natural resources and modern technology for
energy. These houses can be handmade and workshops can be provided. For over a thousand years in

the Arabian Peninsula, Arabs have built houses out

of a mixture of natural resources with mud being
used instead of cement.

Reducing the block size

Given the constraints of high land values, a strategy

to reduce the area of individual villa blocks presents
a potential tool to increase the supply of affordable
housing.

Affordable housing models by governments in other countries

Governments in other countries facing the issue of

affordable housing for a growing population have
initiated a range of workable models. In Morocco,
government and private developers are working together to address the need for affordable housing.
To reduce housing shortages, the Moroccan Government gave away 3,800 hectares of land at reduced prices to developers for constructing 200,000
housing units. To qualify for the subsidized land,
developers were asked to agree to sell flats at below
140,000 Moroccan dirhams on one third of the allocated land, at 200,000 dirham or below, on the
other third, and they could build properties of their
choice on the final third.
13

The Turkish Government has utilized a form of

public private partnership to deliver mass housing
projects through TOKI (Housing Development
Administration of Turkey). TOKI issues tenders
for disposal of Government-owned land to private
developers. Developers are asked to submit plans
as to how many housing units they are willing to
build on the amount of land awarded and out of
that how much land are they willing to return to
TOKI so that it can be used for affordable housing by Government for low income groups. This approach avoids purchasing of the land by the developer, thereby improving the cash flow situation.
In UAE, reduction in block size for villa plots is a
new emerging solution by private developers. Housing preference of high net worth Emirati families

14

can be satisfied by delivering attractive, livable villas

in a standard villa block of 600 to 650 square meters.
This represents a saving of around 40% in land area,
compared to the current standard of villa block size
of 1050 square meters
A Canadian government body, Canada Mortgage
and Housing Corporation (CMHC) provides a
range of mortgage loan insurance products for
owned and rented housing. CMHC provides seed
funding and proposal development funding to private developers, in order to help with some of the
upfront expenses for developing a housing project.
CMHC facilitates the production of new affordable
housing by providing knowledge and expertise as
well as interest-free loans to groups from the private, non-profit, and public sector.

Sources:
l

Colliers International

Deloitte report Living in the KSA

Jeddah City Profile, Riyadh City Profile Jones Lang LaSalle

l http://www.cdsi.gov.sa/english/
l

U.S. Census Bureau, International Database

l https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html
l http://www.joneslanglasalle-mena.com/ResearchLevel1/JLLMENA_Affordable%20Hous-

ing_2011.pdf

l http://www.sagia.gov.sa/Documents/Laws/Real_Estate_by_Foreigners.pdf
l http://www.lw.com/upload/pubcontent/_pdf/pub3507_1.pdf
l http://www.euromoneyconferences.com/downloads/Saudi10/Colliers_International_MENA_

Real_Estate_Overview_Q1_2010.pdf

l http://www.cdsi.gov.sa/english/
l http://www.ft.com/cms/s/0/6c25a83c-ae25-11e1-b842-00144feabdc0.html#axzz2LGNRZli5
l http://www.zawya.com/story/ZAWYA20120206044503/
l http://www.zawya.com/story/Saudi_Arabia_needs_SR13trn_housing_investment_by_2020-ZAW-

YA20121203031051/

l http://www.zawya.com/story/Saudi_developers_focus_on_affordable_housing_sector-ZAW-

YA20120419090923/

l http://www.ewaan.com.sa/en/pressrelease/media-center/press-releases/saudi-arabian-real-estate-

sector-is-all-set-for-exponential-growth.html

l http://www.imf.org/external/pubs/ft/survey/so/2011/int092111b.htm
l http://english.alarabiya.net/articles/2012/01/01/185769.html
l http://www.numbeo.com/cost-of-living/country_result.jsp?country=Saudi+Arabia

15