Govt Policies That Led To A Growth In Saudi Arabia’s Housing Market
The socio-economic initiatives in the past few years and the Saudi Arabia’s current outlook in terms of market and sustainability show that the housing sector here is set to witness a boom. Starting from 2014, as a reaction to the correction in oil prices, the property market witnessed a steep decline in sales and transaction volumes until 2016. This impact was also visible in 2017 owing to the fall in oil prices and other factors, including lack of access to financing, lack of liquidity in the market and shortage of supply in the mid to lower range of the market.
Reportedly, the country’s GDP witnessed a sharp decline from 4.1 per cent in 2015 to near zero in 2017. But the Government of Saudi Arabia put certain measures in place to stem the deficit to around 9.3 per cent. Tax on dependents for expatriates, an introduction of excise tax and the introduction of five per cent value-added tax (VAT) are some of the measures taken by the government. The National Transformation Program (NTP) under Saudi Vision 2030 is seen as the country’s prime strategy. The real estate sector is being seen as a diversifying strategy to shift its focus from oil which has gathered momentum owing to various initiatives taken by the government.
For instance, a major share has been awarded to housing under the NTP with SR 59 billion over the next five years, 22 per cent of the total budget allocated under the initiative. Other stimulus packages have been introduced such as white land tax on underdeveloped plots, the focus on home-building programme named Sakani and the approval of regulations for the use and listing of Real Estate Investment Trust (REITs). Using the Public Investment Fund, a real estate refinance company has been established and a new mortgage law has been introduced to address the country’s lack of financing options.
These policies are seen as a way to contribute to home ownership, correct demand-supply imbalance and lead to growth in the market.
Here’s how these policies have impacted the real estate. There has been an increase in demand in Riyadh owing to lack of existing stock and a growing population. This has resulted in 15 per cent increase in transactional volumes. This has further contributed to high-property values seeing a decline in buyers. The Sakani initiative, which delivers affordable residential units, has started to show results with 38,000 units in Riyadh province, including 3,949 residential plots, 17,151 residential units and 17,029 subsidised housing loans. The story is similar in Jeddah which is projected to grow by 2.5 per cent over the next five years and has been witnessing a growing demand owing to the growing population. Across the Makkah province, the Sakani initiative has delivered 32,000 residential units including 10,046 cost-free developed residential land plots, 11,796 residential units and 9,963 subsidised housing loans. The Eastern Province, which witnessed the largest slump in the prices of the residential market owing to the fall in the prices of oil, is also expected to soon make a recovery, owing to the rise in population and rise of economic activities in Khobar and Dammam.
The Al Aziziyah and Al Hamra districts are witnessing new residential developments owing to the fall in the cost of building materials and the introduction of the white land tax. The Sakani initiative has delivered 25,000 units in the Eastern Province including 1,894 cost-free developed residential land, 15,294 residential units and 8,015 subsidised housing loans.
Despite the overall cooling of the real estate market, the continuous stimulus packages by the government and economic diversification have propelled the real estate market towards growth in both short and mid-terms.