Housing crisis looms in Saudi Arabia

23 March 2010

The preference of developers to build luxury housing means there is a serious shortfall of homes for the kingdom’s rapidly expanding low and middle-income population

Despite Saudi Arabia’s vast oil reserves, multibillion-dollar budget surpluses and ambitious economic cities, real estate development plans in the kingdom are not quite as advanced as they first appear.

Although luxury waterfront villas and gated communities cater to a small percentage of the Saudi population of around 22 million, research suggests a growing number of people across the kingdom are suffering from a housing shortage that is getting worse.

While analysts and government sources disagree on the extent of the housing shortfall, both public and private sources cite an annual shortfall of 160,000 to 200,000 homes.  

Saudi Arabia's Project Pipeline

In numbers
Current shortage of homes in Jeddah283,000
Shortfall in housing in Saudi Arabia by 20152million
Average per capita gross domestic product in Saudi Arabia$14,871
Sources: Jeddah Municipality; Economy & Planning Ministry

Supply shortfall

In its eighth Development Plan (2005-09), the Economy & Planning Ministry writes: “There is a shortage of nearly 0.73 million housing units in [Saudi Arabia] besides the unmet housing demand of 0.27 million housing units by the end of seventh Development Plan (2000-04). We expect this demand to double by 2015.” This translates into a shortage of two million homes by 2015.

A particularly ominous long-term projection for Saudi Arabia’s housing situation comes from the local-level Jeddah Municipality. In a report, it claims there is a current shortage of 283,000 homes in the city, adding that five million new homes would be needed across the  kingdom by 2020.

Several investment banks and consultants have also issued their own reports on Saudi Arabia’s housing shortage. Germany’s Deutsche Bank predicts Saudi Arabia will have a shortfall of 300,000 homes by 2015. The US-based Citigroup warns of an undersupply of residential units ranging from 150,000 to 800,000 by 2012. And, the US’ Jones Lang LaSalle expects Saudi Arabia to see a shortfall of one million homes by 2012.

When considering the housing situation in the kingdom, an important clarification is necessary. Unlike other countries in the Gulf where citizens receive free government housing regardless of means, low- and middle-income nationals in Saudi Arabia need homes just as badly as expatriate professionals and labourers.

Saudi Arabia’s planned economic cities will alleviate some of the pressure for new housing, but mostly, they are missing the point. “At the moment, just 24 per cent of Saudi nationals own homes,” says Will Hean, general manager of Matrix Property Middle East, a unit of the UK-based Matrix. Put simply, people need homes now. And, aside from delivery dates that are 10-30 years into the future, the additional five million luxury townhomes and waterfront villas promised by the economic cities are of limited use to a local population whose per capita gross domestic product (GDP) is just $14,871.

The issue is about providing the right homes to the right people, says Ammar al-Assam, executive director of the UAE’s Dewan Architects & Engineers. “The type of housing [needed] is affordable housing … not luxury housing. Scale and price is very important.”

John Harris, head of Jones Lang LaSalle in Saudi Arabia, sums up the issue facing most of the local population: “At the moment, [most] developers in the market are building homes that cost more than a million riyals. For Saudi nationals who are less well-off, that doesn’t help.”

The situation has become particularly difficult for half of the working local population aged between 20 and 34 years.

“There is growing discontent among young Saudis,” says a construction and property consultant based in Saudi Arabia. “These are well-educated, forward-thinking people who are stuck in their parents’ homes feeling like life is passing them by.”

While there has been great emphasis on developers providing homes for the wrong demographic, some architects and urban planners working in the kingdom see things differently.

“From our experience of working in [Saudi Arabia] and from what we’ve heard, we are fully aware of housing shortages at all levels,” says Sudhir Jambekhar, senior partner at US-based Fxfowle Architects. “We know that many residential buildings are being planned in Saudi Arabia, from Jeddah to Al-Khobar, because we are seeing an increase in request for proposals for mixed-use projects, which include residential components.”

Others believe the housing shortage is less a case of developer disinterest than political posturing. “Actually, there is a fair amount of
planning being done in Saudi Arabia – a number of master-planned residential areas have been on the drawing board for years
– but the implementation is lagging,” says Daniel Hajjar, senior vice-president and regional manager Middle East and North Africa for US-based HOK.

“I think there is a political bent to the housing situation. The mortgage law being enacted would allow young Saudis to get loans to purchase properties. This has not occurred and thus a number of developers are not committed to moving forward.”

Meeting demand

According to a report from Cairo-based HC Securities & Investment (HCSI), two-thirds of the Saudi population lives in urban centres within the Makkah, Riyadh and Eastern provinces. Ten of the 13 provinces measured in the HCSI report cite population figures that exceed available housing. So, the question remains, what is being done to address the kingdom’s growing need for housing?

In Mecca, the local Kingdom Holding Company is building the Abraj al-Bayt complex, which will feature the world’s second tallest building when the 577-metre Makkah Clock Royal Tower is completed in August this year. The development will also feature homes, timeshares and short-term shelter for Mecca residents and religious pilgrims.

The type of housing [needed] is affordable housing…not luxury housing. Scale and price is very important

Ammar al-Assam, Dewan Architects & Engineers

Abraj al-Bayt, located adjacent to the Holy Mosque, the holiest site in Islam, will have a total built-up area of more than 1.4 million square metres and will comprise 15,000 housing units ranging from studios to five-bedroom apartments. The complex will also include a mosque with a capacity for 25,000 people and seven hotels with rooms for 5,000 guests. Located behind Abraj al-Bayt will be a mixed-use development called Jabal Omar.

Built by the local Jabal Omar Development Company (JODC), the 1 million sq m site will feature – among its reported 65 planned buildings – at least eight residential towers, which will be able to accommodate 30,000 to 40,000 residents.

Given the project’s proximity to the kingdom’s most popular visitor attraction, it is likely that the majority of these housing units will be offered as time-share property, which will be of little use to potential buyers seeking permanent housing. But more will become clear once JODC restructures its financing in order to continue the project, the first phase of which is scheduled to be finished in 2011.

Located north of Mecca, the local Al-Shamiyah Urban Development Company is moving forward with designs on its $9bn Al-Shamiyah Mecca Development. As a part of Saudi Arabia’s plan to develop and rehabilitate the region surrounding the Holy Mosque to meet the needs of its residents and visitors, Al-Shamiyah is planning to develop an area of approximately 7.4 square kilometres to house 134,000 residents.

The massive mixed-use project, which is scheduled for completion in 2018, will include villas, residential apartments, hotels, commercial centres, schools, police stations and medical facilities.

Located some 340km north of Mecca, the local Munshaat Real Estate Projects Company is close to finishing its Dar al-Qeblah mixed-use project in central Medina.

Aimed at increasing accommodation in the kingdom’s second holiest city, the 126,000 sq m project is being targeted at both residents and religious pilgrims.

Limited residential focus

Medina’s $7bn Knowledge Economic City, which is being built to attract local and foreign IT entrepreneurs to develop Saudi Arabia’s technology base, will provide 20,000 jobs and permanent accommodation for around 150,000 residents. Completion of the city is scheduled for 2020. 

Midway between the two holy cities lies Jeddah, the kingdom’s western urban centre and principle seaport. While there is plenty of development happening in the coastal city, very few focus on entirely residential projects. 

The $1.6bn Jeddah Gate is a mixed-use development that is split across two sites that are around 413,000 and 140,000 sq m respectively. Although the project being developed by UAE-based Emaar Middle East, will provide 6,000 residential units, much of the planned space will be destined for commercial use and public facilities. Both phases of Jeddah Gate are scheduled for completion in 2020.

The [housing] problem will only be rectified by a large-scale rethink in policy, led by the government

The UAE’s Cayan Investment & Development Company has joined forces with the local Zahran Real Estate Investment & Development Company to build a small mixed-use development on Jeddah’s northern coastal road.

Built on a 34,000 sq m site, the residential component of the project will comprise two towers, and is scheduled for completion in 2012. While everything seems to be on track with the project, its $533m price tag suggests luxury and exclusivity. And as such the project is unlikely to help alleviate overcrowding in Jeddah, say analysts.

Almost 100km north of Jeddah, the planned $26bn King Abdullah Economic City (KAEC) at Rabigh, will occupy 5.5 sq km and have 35km of shoreline. 

Developed by the local Emaar, The Economic City (EEC), the residential component of the project is designed to include 260,000 apartments and 56,000 villas. It is estimated the project will house almost 500,000 permanent residents and another 10,000 seasonal visitors using timeshare accommodation.

On a site 600km south of Jeddah, a consortium led by Malaysia’s MMC Corporation Berhad and the local Saudi Binladin Group is developing Jizan Economic City (JEC) along the Red Sea coast.

JEC will feature a 13.7km residential district which will include 6,472 villas, 24,800 apartments, 14,300 condominiums and 2,766 dormitories. Spread over a 113-sq-km site, the completion date for JEC is scheduled for 2037.   

The central city of Hail in Saudi Arabia will host the Prince Abdulaziz bin Mosaed Economic City. Also called Hail Economic City, the $1.2bn project was conceived as a logistical hub for several industries headquartered in the western and eastern Provinces. 

Developed by the local Al-Mal Investment Company, the project will cover an area of 15.6 sq km and will feature 30,000 housing units and provide accommodation to some 140,000 inhabitants. It is scheduled to be completed in 2025.

The Eastern Province is one of the three most populated urban centres in Saudi Arabia – the others being the provinces of Mecca and Riyadh – and one of the areas highlighted in the HCSI report as having far fewer homes than residents.

Yet, residential development in the Eastern Province seems to be minimal, despite major development in the oil and gas, steel and rail sectors. Here two sizeable residential projects designed for Dammam are on hold indefinitely. 

Demand for housing in Riyadh is greater than anywhere else in Saudi Arabia. Home to the 1.6 million sq m King Abdullah Financial District, Riyadh’s current population of around 4.5 million people is expected to grow to 11.1 million by 2020.

To help meet the projected housing demand in the city, the local Arriyadh Development Authority is planning a massive development programme. Called the Metropolitan Development Strategy, the project is a 50-year plan for that includes construction of two suburban cities and five sub-centres.

The suburban cities will each house 500,000 residents, while the five sub-centres will house 1.25 million people. The first phase of the $5bn development strategy is scheduled for completion by 2016. 

Elsewhere in Riyadh, the local Dar Al-Arkan Real Estate Development’s $1.6bn Shams al-Riyadh scheme, will be finished by 2013 and provide 3,200 villas as well as retail, commercial and public buildings.

The local Talaat Moustafa Group Holding is planning another large-scale mixed use development in Riyadh. Known as Nasamat al-Riyadh, the $2bn project will provide 2,283 villas and 1,198 apartments by 2015.

Policy rethink

On the surface, these long-term projects to address the housing requirements make sense but the kingdom’s population is growing rapidly at 2.3 per cent a year, a figure almost double the global average.

Furthermore, the fastest growing segment of the population is the low and middle-income group and these will be unable to afford the billions of dollars worth of luxury homes being planned and built.

The problem will only be rectified by a large-scale rethink in policy, which has to be lead by the government. And it needs to include approval of the mortgage law to allow long-term financing and shift the national focus from luxury living to affordable housing.

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