Elmo
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Saudi house and home
Jun 4th 2009
From The Economist Intelligence Unit ViewsWire
Saudis are troubled by rising living costs
Saudi Arabia faces a rising unemployment problem, in common with many states, but perhaps uniquely in the current global climate it is still seeing rent levels rising. Partly this is because of sizeable financial and legal barriers to home ownership, which the government seems bent on addressing. With home ownership currently estimated at only 30% of the population, there is huge potential for growth in mortgage lending and also construction.
Barack Obama, the US president, arrived in Saudi Arabia on June 3rd at the start of a tour of the Middle East. Many Saudis will pay close attention to Mr Obamas comments regarding the Arab-Israeli peace process and on Iran. Yet for many Saudis, the most pressing concerns at present are unemployment and the cost of living. The government cannot readily create more jobs, but it is taking some steps to improve access to housing.
Saudi Arabia is one of the few countries in the world where rents are still going up. In sharp contrast to much of the world, there is significant potential for its property market to develop over the next few years, if the government manages to enact a long-awaited mortgage law. At present housing finance is difficult to obtain and the vast majority of Saudis rent.
Official statements suggest there may soon be movement on the housing loan legislation, which has been on the drawing board for more than a decade. In late May the finance minister, Ibrahim al-Assaf, told Reuters that a new state-owned mortgage securities company would be established in conjunction with the new housing loan legislation. The state-owned firm would essentially purchase mortgages from private or public-sector lenders and then securitise the loans into Sharia-compliant bonds, or sukuk, which would be tradable on a secondary debt market. Mr Assaf said that the new company would be set up before the end of year, assuming the new mortgage legislation is introduced by this time. In addition, officials have said the state-owned Public Investment Fund (PIF), which is controlled by the finance ministry, would look to take up to 40% equity in mortgage lenders once the new legislation is implemented.
The undersupplied Saudi housing market is likely to offer significant opportunities for public and private firms alike. In November 2008 the managing director of the Saudi Home Loans company (SHL), an Islamic mortgage lender, said that only 30% of Saudi nationals owned their homes, although official estimates tend to be higher. With no formal mortgage legislation and only limited state help, middle to low-income Saudis have been reliant on family support or occasional government grants to purchase houses. The residential market also remains substantially undersupplied: estimates released in March by Clayton Holdings, a US-based consultancy, put the current shortage at two million residential units, with this figure growing by 200,000 units per year. As a result of the supply shortage, rents rose by an annual 18.8% in April, in stark contrast to the trend elsewhere in the Gulf.
In anticipation of the mortgage law, and given the country's robust demographics, some firms have pressed ahead with housing or housing finance projects. A local developer, Jenan Properties, said in late May that it was planning two projects worth a total of SR5bn (US$1.3bn), which would open in 2013, when the firm expects the economy to have recovered from the current slowdown. The projects in question are a SR1bn residential complex in Khobar, in the Eastern Province, and a SR4bn seaside resort on the Gulf coast; financing has yet to be secured. In mid-May, Samba Financial Group, a local bank, signed an agreement with the state-controlled Saudi Electricity Company (SEC) to provide sharia-compliant housing finance for SEC employees.
Jun 4th 2009
From The Economist Intelligence Unit ViewsWire
Saudis are troubled by rising living costs
Saudi Arabia faces a rising unemployment problem, in common with many states, but perhaps uniquely in the current global climate it is still seeing rent levels rising. Partly this is because of sizeable financial and legal barriers to home ownership, which the government seems bent on addressing. With home ownership currently estimated at only 30% of the population, there is huge potential for growth in mortgage lending and also construction.
Barack Obama, the US president, arrived in Saudi Arabia on June 3rd at the start of a tour of the Middle East. Many Saudis will pay close attention to Mr Obamas comments regarding the Arab-Israeli peace process and on Iran. Yet for many Saudis, the most pressing concerns at present are unemployment and the cost of living. The government cannot readily create more jobs, but it is taking some steps to improve access to housing.
Saudi Arabia is one of the few countries in the world where rents are still going up. In sharp contrast to much of the world, there is significant potential for its property market to develop over the next few years, if the government manages to enact a long-awaited mortgage law. At present housing finance is difficult to obtain and the vast majority of Saudis rent.
Official statements suggest there may soon be movement on the housing loan legislation, which has been on the drawing board for more than a decade. In late May the finance minister, Ibrahim al-Assaf, told Reuters that a new state-owned mortgage securities company would be established in conjunction with the new housing loan legislation. The state-owned firm would essentially purchase mortgages from private or public-sector lenders and then securitise the loans into Sharia-compliant bonds, or sukuk, which would be tradable on a secondary debt market. Mr Assaf said that the new company would be set up before the end of year, assuming the new mortgage legislation is introduced by this time. In addition, officials have said the state-owned Public Investment Fund (PIF), which is controlled by the finance ministry, would look to take up to 40% equity in mortgage lenders once the new legislation is implemented.
The undersupplied Saudi housing market is likely to offer significant opportunities for public and private firms alike. In November 2008 the managing director of the Saudi Home Loans company (SHL), an Islamic mortgage lender, said that only 30% of Saudi nationals owned their homes, although official estimates tend to be higher. With no formal mortgage legislation and only limited state help, middle to low-income Saudis have been reliant on family support or occasional government grants to purchase houses. The residential market also remains substantially undersupplied: estimates released in March by Clayton Holdings, a US-based consultancy, put the current shortage at two million residential units, with this figure growing by 200,000 units per year. As a result of the supply shortage, rents rose by an annual 18.8% in April, in stark contrast to the trend elsewhere in the Gulf.
In anticipation of the mortgage law, and given the country's robust demographics, some firms have pressed ahead with housing or housing finance projects. A local developer, Jenan Properties, said in late May that it was planning two projects worth a total of SR5bn (US$1.3bn), which would open in 2013, when the firm expects the economy to have recovered from the current slowdown. The projects in question are a SR1bn residential complex in Khobar, in the Eastern Province, and a SR4bn seaside resort on the Gulf coast; financing has yet to be secured. In mid-May, Samba Financial Group, a local bank, signed an agreement with the state-controlled Saudi Electricity Company (SEC) to provide sharia-compliant housing finance for SEC employees.
