Saudi Arabia Seeks Partners to Build 1.5-M Homes
Saudi government offers property developers partnership deals to address a shortage of affordable housing
Saudi housing minister Majed al-Hogail has unveiled a new construction program, which aims to build 1.5-M homes over the next 8 years.
Under the scheme, the Saudi government will offer foreign and local property developers a partnership deal, whereby the developer would take the role of investor and bear the risk. In turn, the Ministry will support projects by helping arrange financing.
“We are preparing 6 types of partnership between the ministry and the developer,” said Mr. Hogail, at a news conference this week.
The program will address the shortage of affordable housing in the country, an increasing social and economic problem as its young population of 21-M continues to grow.
Past efforts have seen the government set aside large amounts of state money to build homes. However, these have seen slow progress due to bureaucracy and a shortage of land.
The Saudi government is now taking a different approach in addressing the issue, seeking to play the role of regulator while privatizing the task of designing and building houses.
“We want to catalyze the private sector, to be a partner with it, we want them to play the prime role,” Mr. Hogail said.
The Saudi government hopes to stimulate the program by shrinking the average time required to approve and license new residential estate projects from 730 days to 60 days by Y 2020.
It also plans to move more aggressively to deter the hoarding of land and force plots out into the market where they can be bought and developed.
Around SAR 59-B ($15.7-B) has been allocated to a loan guarantee program and other housing schemes over the next 5 years to provide financing to home buyers and real estate developers.
Mr. Hogail said Saudi’s Real Estate Development Fund, currently financing about SAR 190-B worth of projects, aims to raise money for operations by issuing Sukuk.
However, the 1st issue seems unlikely to occur before the end of Y 2017 due to tight liquidity in money markets.
Local property developer Dar Al Arkan’s share price rose by by more than 20% this week, after it was revealed to be in talks with the government regarding a partnership. http://www.alarkan.com/default.aspx?lang=en#/8/40
Minister Hogail maintained that the Kingdom is also keen in pursuing partnerships with foreign developers, due to the expertise and diverse projects they can provide. Last month, the housing ministry was given government authorization to seek the assistance of Britain, France and China in the construction program.
If the program succeeds, it would provide the kingdom with a source of economic growth to offset the fall in Crude Oil prices.
It is hoped that the reform plans will double the real estate sector’s contribution to the gross domestic product to 10% by Y 2020. Authorities will therefore “encourage” the Kingdom’s local investors and landowners to get involved in income-generating development projects.
Minister Hogail also said that details of a tax on undeveloped urban land would be released within 2 weeks.
By Natasha Malik
Paul Ebeling, Editor