Affordable Housing Initiatives in Saudi Arabia

Due to its strategic position in Vision 2030 where KSA aims at diversifying its economy and ensuring citizens of better standards of living, affordable housing has become a social economic necessity in the Kingdom of Saudi Arabia. These reforms are in process and greatly affect the real estate and other property sectors in Saudi Arabia due to the government’s action.   Since 2017, when about 1.6m Saudi nationals were waiting on lists for government housing programs, the Ministry of Municipal and Rural Affairs and Housing (MoMRA) has been implementing measures to increase availability as well as finance the affordability of affordable housing. The high mortgage interest rate with many of the Government-backed interest-free loans and also the long waiting lists left many Saudis unable to afford other options available.  

Need for Affordable Housing  

A young and growing population is a need for affordable housing in Saudi Arabia. The Saudi General Authority for Statistics puts the population under the age of 30 at approximately 60 percent. Young people are just starting their careers and desiring their own homes; this demographic places an incredible amount of pressure on the housing market. This demand has been recognized by the Saudi government as a matter of urgency. So much has been invested to make more affordable housing available. It is a social imperative; it is also a strategic economic move because housing development generates economic activities on the construction, real estate services and related activities.

Saudi Arabia expects approximately 90% of the population will live in cities by 2030. Riyadh, Jeddah, and Dammam are already experiencing considerable demand with population growth of 2.2% per annum; middle-income families now looking for affordable accommodation are also arriving. However, there is still concern about the real estate market affordability divide. The deficit of housing today is 1,5 million homes, and new construction demand is 200,000 homes per year, according to the ministry. In the recent past, property prices in urban areas have risen to between 5% and 10% annually, a situation that has made homeownership a preserve of the well-off middle and low-income earners.  

Vision 2030 and the Real Estate Sector 

 Real estate is a key sector for the economy, and Vision 2030 has therefore assigned it a strategic importance. Another is to improve the overall ownership of property of KSA from 47% in the year 2016 to 70% in the year 2030 in percentage rate. In an effort to achieve this, the Saudi Ministry of Housing has some measures that make homeownership a reality. Containing subsidies for loans, cooperation with private companies for creating new housing, and the amendments in the legislation on lands and properties providing free competition for average Saudi customers are included.

The second key Vision 2030 goal is to raise the homeownership rate for Saudis from 47% to 70%. However, to achieve this, the government has taken some measures to the dead end, which are the Sakani program to offer affordable housing solutions to low and middle-income families. It comprises the strategy to develop half a million new homes by 2030. This will sum up to increase the real estate sector and will give a chance to developers and construction companies.

The growth of the private sector is also anticipated to yield a positive impact on the real estate industry revenue. The government has been implementing several changes compliant with Vision 2030 to encourage FDI and venture capital. Business opportunities have been taught in the business domain, and Saudi Arabia has, therefore, emerged as a more favourable ground for investments. As a result of these initiatives, there has been an increase in demand for office and retail space, most especially in the cities of Riyadh and Jeddah. 

Key Initiatives and Projects

The Ministry of Housing, in collaboration with the Real Estate Development Fund (REDF) launched the Sakani Housing Program in 2017 as a real estate initiative to support Saudi citizens with owning their first home.  The aim was to generate new stock and real estate units, to provide plots and homes to nationals, and to assist with financing their purchase. The goal of this program is to increase the figure for homeownership to 70 percent within the year 2030. The Sakani Housing Program has recently finished several projects in the strategic areas of Saudi Arabia, including the emerging city of Al Khobar.    

Saudi Arabia has relied on PPPs as one of the key financing and project implementation techniques for infrastructure development because they offer a critical way of ensuring infrastructure delivery. In PPPs, the public sector (usually represented by a government agency) and private sector entities (which may be in consortium or unique purpose company form) collaborate. One of the crucial PPP projects contributing to Saudi Arabia’s infrastructure development is the Riyadh Metro project is the largest of its type in the world with a relatively high level of private-sector involvement. In Jeddah, the PPP is facilitating the development of the project of expansion of the King Abdulaziz International Airport and thereby, the condition of the city as one of the gateways of Saudi Arabia is being officially established. 

Challenges  

Construction material costs, which have increased by 15-20% due to supply chain problems cutting across the globe, have greatly affected Saudi Arabia’s ability to achieve its housing goals. For two reasons, traditional construction methods are a problem – they are more expensive and take longer than, for example, modular construction or construction using a 3D printer. One more major challenge closely connected with the previous one is the problem of high costs and availability of the land for usage. The cost of developing accommodation has gone up by 20 percent, thanks to the high cost of land in KSA cities such as Riyadh and Jeddah, which have experienced a similar rise in the last five years. The rise is steep, narrowing the gap further in terms of what low- and middle-income earners can afford and making it even harder to construct affordable homes. 

At the same time, despite such programs as Sakani that provide subsidized loans, low-income families are dealt a hand, as financial requirements are strict and difficult for low-income families to meet. The price for land and construction materials in prime locations keeps on rising and hinders the development of affordable housing projects. In addition, there are bureaucratic hurdles, which can delay construction projects, and delay the supply chain and housing availability. 

Future Opportunities  

Growth in the housing sector is likely to continue because the government remains focused on economic diversification and infrastructural development. Also, the pressure on local players belonging to the construction sector will reduce costs and foster the establishment of local expertise, which will help in the future by bringing better cost-efficiency and management of housing projects.  International partnerships and investments are also expected to have an important role to play in accomplishing the housing targets in Vision 2030. Combined with these partnerships, you can obtain not only funds but also new progressive technologies and activities that can improve the efficiency of the current housing projects and indicate their sustainability.

The next stage of the Housing Programme will be the most underprivileged segments of society and will involve increasing the private sector. Private sector funding is central in the development of the sector and enhancing it to be stable in case of any changes in the economy. To attain the housing stock of 4.96 million houses by the year 2030, the Kingdom will need 1.2 million houses. We expect housing demand to grow between 99,600 houses in 2021 to 153,000 houses by 2030. The government’s robust policy framework and initiatives, including the activation of many finance products, are driving the sector forward, solving the main problems in the housing market and making home ownership potential for the new generations of Saudis. This is truly a success story of KSA’s housing sector transformation and we will start seeing the impact across the Kingdom for many years to come. 

Conclusion

It is expected that the affordable housing scenario in Saudi Arabia will improve in the future. The government has kept on ensuring that the diversification of the economy and the infrastructural base will continue; this will help the growth of the housing industry. Moreover, the drive towards localization of the construction industry will assist the general efforts of cutting costs and enhancing the development of local professionals for better control and sustainability of housing projects in the future.

‍

Disclaimer: The content provided in this article is for informational purposes only and should not be construed as investment advice. Tanemya Capital will not be held responsible for any decisions made based on the information provided. Always consult with a qualified financial advisor before making any investment decisions.