Real Estate in Saudi Arabia: Behind the Coming Major Overhaul


Ever since the dawn of the so-called “Arab Spring,” there has been a renewed focus on key sectors of MENA economies in order to identify the roots of any brewing socio-economic frustrations. No sector has drawn as much interest and action in Saudi Arabia as its housing sector. This is because real estate wraps up many concerns into one. Saudi Arabia has a swelling young population and yet has a very low number of affordable units available for ownership. On top of that, the lack of a concrete mortgage law has led to a staggering low number of loans for home ownership.

In December, Reuters reported that 28% of homes supplied in Riyadh over the previous 18 months were vacant due to the unaffordability of those units. While Saudi Arabia was facing a housing shortage, it was also constructing many homes that were too expensive to be purchased. So it was not totally a surprise that half of King Abdullah’s “stimulus” for Saudi Arabia, announced in a series of royal decrees on March 18, was dedicated to addressing the housing situation in the Kingdom. At a cost of SR250 billion, the government of Saudi Arabia is planning to construct as many as 500,000 new homes across the country to make home ownership for Saudi Arabia’s growing middle class a reality, and the announcement was met with great optimism especially among Saudi Arabia’s younger population.

The move to revamp and revitalize the Saudi real estate sector, like other spending programs announced in the recent stimulus, are generally intended to boost confidence. Initially, the government announced that it would increase spending by $15 billion, but experts found the amount alone would probably “do little to relieve the country’s home shortage unless it’s coupled with long-delayed changes in mortgage financing laws,” Bloomberg reported at the time of the announcement. Handouts and wealth distribution are important for the Saudi economy and political stability alike, but also important is enactment of a fair mortgage law that would allow Saudi citizens access to lending in order to purchase these new units.

In November of last year, Bloomberg reported that “fewer than 1 percent of Saudi home purchases are financed by mortgages. That compares with 7 percent in neighboring United Arab Emirates and 66 percent in the U.S.” citing Deutsche Bank estimates.  In December of last year, Jones Lang Lasalle found that “tight construction credit and the inability to sell property offplan are constricting the flow of supply into the market,” according a report in  There was also some push back against the proposition of a mortgage law from banks, because some banks were “worried about having to deal with huge losses when the long-proposed mortgage law comes into force.” But the “bottom line” remained for Saudi citizens: without a new mortgage law, getting a loan would be very tough.

As important and impactful as the Saudi stimulus will be for the real estate sector, the recent announcement that the Shoura council has approved the new mortgage law is arguably more significant for the industry’s long-term prospects in the Kingdom. “The enactment of the mortgage law will act as a catalyst for the domestic real estate sector, enhance the market’s sophistication and widen funding options for middle-and low-middle income groups if applied and enforced,” Zawya reported, citing a BSF study.

Given all of these considerations, it is hard to see the recent developments in the Saudi real estate sector as anything but a complete, and necessary, overhaul. Not only will there be a huge flow of cash into building new homes (and handouts to government employees that will make initial down payments easier), a new Mortgage law should kick lending and borrowing into gear at last.

On the heels of these historic developments, real estate consultancy Jones Lang LaSalle released its “Top Trends for Saudi Arabia’s Real Estate in 2011” annual report, which was quite bullish about the Kingdom’s real estate market in light of recent developments. The report, portions of which can be read in this press release, highlighted six key predictions:

Stimulus package will help to build communities

-Government leadership is a catalyst for real estate

-Infrastructure is critical for realising real estate objectives

-Property Management will differentiate the winners from the losers

-Light industrial and logistics sectors are on the rise

-Growth of middle income, mid-scale residential developments

The recent overhaul of the industry in Saudi Arabia through the stimulus and mortgage law addition is likely to help the country achieve “critical social goals,” according to JLL’s Jeddah office co-head Soraka Al Khatib, as quoted in the above press release. “Recent initiatives outlined in the stimulus package, illustrate the strong leadership role of the government, which will act as a catalyst for real estate. Importantly, these initiatives offer an excellent opportunity to achieve critical social goals, like job growth and community building.”

For Saudi Arabia’s real estate sector, it is a race against time.  BSF’s Sfakianakis, in a report released on March 20th, laid bare the immediate housing needs for the Kingdom in the coming years: Saudi Arabia’s housing sector “will require some 1.65 million new units be built by 2015 to cater to demand among a youth-dominated population.” However, the Kingdom is off to an encouraging start, aided by a massive cash infusion via the Saudi stimulus, and with the enactment of a new mortgage law to increase lending. If the housing sector can keep up with the booming younger population in Saudi Arabia, the Kingdom’s overall economic prospects are bright.