UAE developers eagerly anticipate formation of Saudi housing company

The revelation by Saudi Arabia that it will launch a state-backed development company in a bid to ease its housing shortage has sparked the interest of UAE developers.

Saudi Arabia’s housing minister, Majed Al Hogail, told Bloomberg it would create a development company that will give businesses plots of land, and provide a mortgage guarantee fund that would serve as a useful method for bringing financing to schemes.

The moves are being made with a view to breathing life into a mass house-building plan that was announced by the late King Abdullah in 2011, who had issued a decree to set aside 250 billion Saudi riyals (Dh244.85bn) to facilitate the construction of half a million homes.

A spokesman for Emaar Properties described the decision to set up the development company and the fund as “a welcome move that will further energise the property sector and help meet the growing need for houses, especially from the kingdom’s youth population”.

“It will also open up opportunities for developers with proven expertise in developing thoughtfully designed communities to partner in the initiative by the ministry. The focus on paving the way for home ownership through the mortgage-guarantee will also drive demand,” the spokesman said.

Emaar Properties has been involved with three masterplanned schemes through its residential-led Saudi joint venture, Emaar Middle East, including a 4.6bn-riyal masterplanned villa community in the Eastern Province known as Al Khobar Lakes. The Emaar spokesman said the ministry’s new initiative “will be an incentive for Emaar, which already has a strong presence in the kingdom, to explore further opportunities”.

The property consultancy JLL had predicted more government action on affordable housing in February, pointing out that 60 per cent of households in the country fall within the middle-income segment, which it defines as those earning between 6,000 and 20,000 riyals per month. On such salaries, most areas in major cities such as Jeddah and Riyadh are unaffordable for those looking to buy property.

Saudi Arabia has been attempting to address this. Late last month, the housing minister signed a deal with a consortium led by the South Korean contractors Hanwha E&C and Daewoo E&C for up to 100,000 new homes to be built near King Khalid Airport north of Riyadh over 10 years. The deal is reportedly worth US$20bn.

Ajay Rajendran, the vice-chairman of Sobha Middle East, said that for developers, “land acquisition is very expensive and it is not as freely available in the market” as in other parts of the GCC. “So I think the government is playing a role with this new company they are putting together.

“At this point in time, we are not looking at operations in Saudi Arabia but at some time in the future, when we are ready, we would be happy to explore it.”

Ramzi Darwish, a consultant at Cluttons, said the new development company would be financed, in part, by the white land tax that was introduced in January. This was also aimed at encouraging investment by taking undeveloped land, which has been held as a store of value by many Saudi investors in recent years. “The tax is already putting a downward pressure on land values and more pressure on land owners to either develop or sell,” he said.

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