{"id":90354,"date":"2021-07-13T05:49:30","date_gmt":"2021-07-13T05:49:30","guid":{"rendered":"https:\/\/www.alj.com\/?post_type=perspective&p=90354"},"modified":"2021-08-04T11:25:28","modified_gmt":"2021-08-04T11:25:28","slug":"building-tomorrows-hopes-and-dreams-today","status":"publish","type":"perspective","link":"https:\/\/alj.com\/en\/perspective\/building-tomorrows-hopes-and-dreams-today\/","title":{"rendered":"Building tomorrow\u2019s hopes and dreams today"},"content":{"rendered":"

If the true measure of a country\u2019s strength is how it weathers adversity, Saudi Arabia is a powerful force indeed. \u00a0As the world entered 2021 and the effects of COVID-19 reached a global crescendo, Saudi Arabia\u2019s economy was already proving its mettle by rallying<\/em> instead of reeling<\/em>.\u00a0<\/p>\n

The country\u2019s Purchasing Managers\u2019 Index, which measures Saudi Arabia\u2019s private non-oil economy, averaged 54.2 in Q4 2020, a steep climb from Q2\u2019s 46.7 and Q3\u2019s 49.8.\u00a0 In December it reached its highest level for a year \u2013 a strong indication that the country\u2019s GDP decline during this unprecedented tumult will be far less than the 5.4% the IMF initially forecast[1]<\/a>.<\/p>\n

\"Saudi<\/p>\n

Such resilience amply demonstrates why Saudi Arabia is the Middle East\u2019s soar-away success story. \u00a0And as the country augments its status on the world stage, the citizens driving its economic ascension are increasingly channeling the rewards of their entrepreneurial and industrious spirits into the security of property.<\/p>\n

With demographics evolving and prospects broadening, the nation is busy laying the foundations, brick-by-brick, home-by-home, for a real estate revolution befitting Saudi Arabia\u2019s dynamic global profile.<\/p>\n

\"SaudiReal estate is a cornerstone of the country\u2019s national development strategy, Vision 2030<\/a>, which states that: \u201cThe real estate industry plays a substantial role in promoting sustainable development in Saudi Arabia; it is a strategic production factor for all vital sectors. \u00a0<\/em><\/p>\n

\u201cIt is also a vital incentive for income-based, job-creating investment, in addition to being a basis for launching investment projects in miscellaneous economic and social fields.\u201d<\/em><\/p>\n

Invest Saudi<\/a>, one of the public bodies responsible for propelling the nation toward its Vision 2030 goals, acknowledges that the growing real estate market is fueled by rising demand. \u00a0It notes that Saudi Arabia\u2019s population dwarfs the headcount of other GCC countries \u2013 and latest figures show its population exceeding 35 million for the first time[2]<\/a>. \u00a0Tellingly, almost half of those people are aged under 30. \u00a0They\u2019re young, they\u2019re upwardly mobile, and they\u2019re keen to secure their future by laying down roots. \u00a0These social and economic changes have been under way for decades, and the trajectory is only set to continue, with further population growth tipped to outpace global averages over the next decade.<\/p>\n

\"Saudi<\/p>\n

Already we can see the fruits of this youthful and ambitious mindset, with a speed that is taking many by surprise. Guided by the bold objectives of Vision 2030, the Ministry of Municipal and Rural Affairs and Housing<\/a> (a product of the recent merger between the Ministry of Housing and Ministry of Municipal and Rural Affairs) had aimed to increase home ownership to at least 70% by 2030. \u00a0However, more than a million new families have joined the housing ladder in just four years, sending ownership rates skyrocketing from 47% to 60% already.[3]<\/a>\u00a0 If current trends continue, Saudi Arabia faces the real prospect of hitting its 70% target by 2025, a remarkable five years ahead of schedule.\u00a0<\/p>\n

The Ministry of Municipal and Rural Affairs and Housing, in partnership with the Real Estate Development Fund, will be central in maintaining this momentum.[4]<\/a>\u00a0 The consolidated body will build on the success of the country\u2019s Housing Program, which granted citizens an immediate right to real estate instead of the traditional 15-year waiting period, effectively doubling the pace of supply and demand.[5]<\/a><\/p>\n

Any worthwhile real estate strategy is more nuanced than simple numbers on a spreadsheet, and Saudi Arabia\u2019s is no exception. \u00a0Legislators have been careful to promote the right mix of housing, in the right locations, and to ensure properties are built for a future which might be subtly, or significantly, different from the present day.<\/p>\n

Reaching the eventual 70% home ownership goal will require significant input from the private sector \u2013 and in the private sector, long-term confidence is key. \u00a0Thanks to COVID-19 rewriting the rulebook for the global economy, now might not appear a prime time for speculative investment. \u00a0However, all signs so far point to impressive durability in the Saudi real estate sector. \u00a0Even a global pandemic, for all its destructive power, has been unable to derail the country\u2019s powerhouse property boom.<\/p>\n

Passion for property remains potent<\/h2>\n

Around the country the residential market reflects this unexpected buoyancy.<\/p>\n

In Riyadh, the total volume of residential transactions increased 11% year on year to Q4 2020, led by apartment prices rising 1.6% to an average of SAR 3,317 per square meter.[6]<\/a>\u00a0 Meanwhile in the Dammam Metropolitan Area, apartment sale prices rose 0.8% to SAR 2,930 per square meter and the total value of transactions increased by 3%.\u00a0 And in Jeddah, over the same period, rising residential volumes (+17%) and values (+16%) were driven by the upswing in the number of mortgages authorized by lenders.<\/p>\n

Residential mortgage loans surged by 38% in the 12 months to the end of February 2021, with villa loans comprising around 80% of 26,800 new property contracts that month, accounting for some US$ 3 billion of business[7]<\/a>.\u00a0 According to the Saudi Arabia Monetary Authority<\/a> (SAMA), the total value of residential mortgages increased to SAR 16.4 billion[8]<\/a>.<\/p>\n

Every tactic is being used to stimulate commerce, with the Ministry of Investment<\/a> granting 466 foreign investment licenses in Q4 2020, up 60% from the previous year, covering sectors such as Information and Communications Tech. (ICT), retail, e-commerce, logistics and manufacturing[9]<\/a>. \u00a0Such steps have had a tangible impact, with the unemployment rate in Saudi Arabia falling to 12.6% in Q4, down from 14.9% in Q3.<\/p>\n

\"Saudi<\/p>\n

Looking ahead, residential stock is predicted to increase in tandem with transactions, guaranteeing a property pipeline as the country emerges from the shadow of the pandemic.<\/p>\n

In Riyadh, around 36,000 new units are expected to hit the market in 2021, adding to the existing 1.3 million unit stock. \u00a0Jeddah is anticipating 12,000 new units during the same period, on top of its current 838,000 total. \u00a0During Q1 2021 some 7,700 and 2,000 new units were completed in Riyadh and Jeddah respectively[10]<\/a>.<\/p>\n

Looking ahead, MENA-based real estate advisory JLL predicts Jeddah\u2019s residential sector will be sustained by local demand, while Riyadh is expected to benefit from government initiatives promoting the city as a regional business hub \u2013 spurring a potential influx of buyers from international markets.<\/p>\n

A demonstration, if one was needed, of how policymaker incentives can influence real estate performance on the ground.<\/p>\n

Policies propel market to new highs<\/h2>\n

A progressive approach to real estate can help underpin an entire economy. \u00a0Nimble governments must reliably deliver policies stimulating supply and demand against a shifting economic landscape.<\/p>\n

So it was in October 2020 when, amid the global economic maelstrom of Covid, Saudi Arabia introduced a policy to exempt the residential property market from the standard 15% VAT rate, and instead introduce a new 5% real estate transaction tax.<\/p>\n

It was a move which, according to Faisal Durrani, head of Middle East research at real estate consultancy Knight Frank, \u201cimproved business confidence during the closing months of 2020 . . .\u00a0 \u00a0and helped drive a turnaround in performance in all main segments of the real estate market<\/em>\u201d.[11]<\/a><\/p>\n

The VAT exemption was just one among a range of measures designed to exploit the expertise of the private sector and enable construction to occur more quickly, at higher quality and lower cost.<\/p>\n

Saudi Arabia has also been busy adopting new 2D and 3D building models to accelerate the development of new projects, as well matchmaking between financiers and developers, and launching business support initiatives and preferential term loans.\u00a0 All of which will help service the needs of an increasingly agile, mobile and aspirational workforce in years to come.<\/p>\n

Why so confident?\u00a0 For one reason, the International Institute for Management Development (IMD) notes that Saudi Arabia spends 8.8% of its GDP on education, almost double the global average of 4.6%[12]<\/a>. \u00a0Bold investment like this brings rewards: the literacy rate of those aged 65+ in 2017 was just 62.4%, but 99.3% for those aged 15-24. \u00a0Out-of-school adolescents fell from 44,143 in 2016 to only 15,343 in 2019[13]<\/a>.<\/p>\n

\"\"<\/p>\n

All of which bodes well for an even healthier real estate market in the medium and long term.<\/p>\n

Confronting challenges; maximizing opportunities<\/h2>\n

Much of the real housing shortage in Saudi Arabia exists at the lower end of the income spectrum. \u00a0As such, affordable housing is a key ingredient in the country\u2019s recipe for success over the coming decade.<\/p>\n

With a youthful and expanding population, policymakers are grappling with which method of affordable housing creation will have greatest impact on the most lives.\u00a0<\/p>\n

Overcoming such initial hurdles as a lack of experienced developers and a paucity of existing public\/private partnerships upon which to build, Saudi Arabia\u2019s Housing Program is fast emerging as a model of best practice for other countries to emulate.<\/p>\n

Several innovative steps have helped turbo-charge the market. \u00a0The launch of online platforms such as Sakani<\/a> have encouraged partnerships with real estate developers in the private sector. \u00a0The founding of the National Housing Company and the Etmam Center<\/a>, meanwhile, have allowed developers to navigate the market using a comprehensive digital platform. \u00a0And a Developmental Housing program has remedied supply shortages for the most underprivileged families, working alongside the non-profit sector to establish more than 350 residential community associations.<\/p>\n

Simultaneously, the legislative environment has vastly improved via the launch of the General Authority for Real Estate to serve as a central regulatory body.<\/p>\n

Where next? According to Vision 2030, the Housing Program will continue increasing home ownership rates by \u201cfurther targeting the most underprivileged segments, in addition to boosting the attractiveness of the sector for investment by the private sector in order to support the stability and sustainability of the sector under different economic conditions\u201d.[14]<\/strong><\/sup><\/a><\/em><\/p>\n

Looking ahead to the 70% ownership milestone, a blanket approach seems unlikely within such an economically-diverse country. \u00a0Instead, planners and researchers will have to gauge what the very word \u2018affordability\u2019 means in different regions, and the correct balance of for-sale\/for-rent stock.<\/p>\n

The successful solution \u2013 or mix of solutions \u2013 will harmonize national policy goals with local market dynamics, enshrine training and approval standards to ensure sufficient quality developers, and accommodate the commercial realities of private investment.<\/p>\n

It is a bold ambition, but it can be achieved \u2013 as our ambitious slate of real estate developments at Abdul Latif Jameel<\/a> testifies.<\/p>\n

Turning the key on a real estate revolution<\/h2>\n

A booming economy and rapidly growing population translate to greater demand for housing. \u00a0<\/p>\n

Historically at Abdul Latif Jameel, the initial core focus for the \u2018Land and Real Estate\u2019 division activities focused on developing and delivering the Company\u2019s own corporate real estate projects and to support growth and expansion in its core business.\u00a0 The division\u2019s success in meeting these objectives lead to the official formation of Abdul Latif Jameel Land in 2012, which formally stepped into Saudi Arabia\u2019s real estate market in 2013, with a commitment to fostering a better way of life in the communities that we serve.\u00a0<\/p>\n

Aligned with Vision 2030; where the government is partnering with private sector in helping Saudi Arabians own their own homes; the business moved forward to specialize in developing quality residential properties with modern community lifestyle and a value proposition to the market of enhancing home living experience at an affordable cost, or \u2018affordable luxury\u2019.\u00a0<\/p>\n

More recently, Abdul Latif Jameel Land has been refining its priorities to focus more specifically on residential property, with the aim of increasing access to quality home ownership.\u00a0<\/p>\n

Our residential development team has a pipeline of projects completed or under way (including apartments, villas and townhouses) to help address the predicted 3.3 million homes shortage in Saudi Arabia by 2025.<\/p>\n

Flying the flag is our J | ONE Residences<\/a> gated community north-west of Jeddah, comprising 242 one-to-four-bedroom apartments within a 65,000 square meter site. \u00a0The eco-friendly development, which launched in 2019, includes facilities such as a health club, theatre, pools, nursery and shops.<\/p>\n