Several factors are contributing to Saudi Arabia’s high demand for residential housing. Regional investment bank Kuwait Finance House (KFH) says: “Robust growth in the real estate sector has been driven by strong economic growth, massive liquidity, growing population trends and changing demographics. With increasing demand for housing in the country, prices grew at an average of 13.7% a year, land by 16.5% and commercial (office) space by 15.2% from 2002 to 2005.”

According to National Commercial Bank (NCB), the Saudi population increased by 6.47 million between 1996 and 2006, to 23.7 million. NCB estimates that by 2020 the population will be 33.7 million – thanks to one of the world’s highest population growth rates – and would need to be accommodated in about 6.5 million residential units.


Healthy oil prices have led to real gross domestic product growth averaging at 5.1% in 2002-06; per capita income also rose from $8785 to $15,352 in the same period. KFH notes that unemployment is declining and “rising income coupled with improvement in living standards will support higher demand for housing moving forward”.

Still, concerns remain over a potential housing supply/demand imbalance due to rising demand and affordability limitations among the growing middle-income population. NCB said recently: “Investments in the Saudi residential development sector have lagged behind those made in neighbouring GCC [Gulf Co-operation Council] countries, impacting [on] future housing supply.”

New mortgage law

Although the size of the kingdom’s residential mortgage market is unknown, most analysts agree that the potential is vast. “The implementation of the mortgage law will provide stimulus to the growth and real estate prices of the residential segment moving forward,” says KFH. “The new mortgage law will open up markets, thus providing more opportunities for foreign participation. Currently, the housing credit market stands at approximately SR4bn [$1bn] and is expected to grow by at least tenfold by 2010.”

KFH expects the new mortgage law to be passed between end-2007 and the first half of 2008.

Traditionally, purchases of housing units have mainly been funded by private savings or by help from the government-backed Real Estate Development Fund (REDF), which was established in the mid-1970s. By 2006, it had provided financing for about 613,000 units. NCB noted in a recent report: “Recent data… reveals an acceleration in loan disbursements from the REDF, its fastest growth in over a decade.”

NCB estimates the size of outstanding housing credit will rise from SR4bn this year to about SR46bn by 2010, assuming a gradual rise in the share of new residential units purchased through housing loans from 10% in 2007 to 55% by the end of the decade.

Some Saudi companies are already primed to take advantage of the expected demand. In April, the Saudi real estate giant Dar Al Arkan Real Estate Development Company linked up with Arab National Bank, the World Bank’s International Finance Corporation and India’s Housing Development Finance Corporation to create the kingdom’s first housing finance company. Dar Al Arkan’s managing director, Abdullatif Al Shalash, says that the new company is the result of efforts made to help Saudi youth buy real estate by providing them with sharia-compliant financial tools.

In May, Al Rajhi Bank announced a new mortgage programme for private and commercial properties. “The long-term repayment facility, which can go up to 25 years in a staggered schedule, and the provision to include a family member or friend has made this programme highly popular among those who are planning to own real estate, ” the Islamic bank said.

Mega projects

According to one recent survey, Saudi Arabia plans to build a million new housing units in the next five years. Under the kingdom’s eighth development plan (2005-09) the private sector will build about 875,000 units – of those, 225,000 would be built with government support. The development plan also envisages the provision of about three billion square feet (sq ft) of residential land to meet demand.

KFH forecasts that by 2020, about 2.36 million new housing units (147,500 annually) worth $320bn will have been built, and NCB estimates annual demand for new units rising from 129,000 this year to 195,000 by 2020.

Demand for new housing is high across the kingdom, but particularly in Riyadh (the population of which has more than doubled in the 1990-2005 period) and Jeddah, where residential units have traditionally been located in the northern parts of the city, but where housing projects are gradually spreading south.

Billionaire investor Prince Alwaleed Bin Talal Al Saud’s Kingdom Holding Company (KHC) is behind the new Jeddah & Riyadh Land projects. KHC, which is working with Booz Allen Hamilton on the plan, estimates that the 180.8 million sq ft Riyadh Land development will house about 75,000 people. The 21.5 million sq ft Jeddah Land development will be a mixed-use commercial, residential and resort development that KHC believes will create total investment potential of more than SR55bn.

Other large developments include the $11.2bn Jeddah Hills by Emaar Middle East (a joint venture between UAE-based Emaar Properties and Saudi-based Oula Development Company), providing 20,000 residential units; Dar Al Arkan’s SR6bn Riyadh View, with 8000 housing units; and the 2.47 million sq ft Jabal Omar real estate project in Makkah. The latter is backed by the Jabal Omar Development Company, established in July 2005 with capital of $1.3bn. The development will provide housing and hotel space for 87,000 people – mainly pilgrims.

The new King Abdullah Economic City – one of several – will contain about 150,000 residential units. Emaar says the project is the largest single private sector development in the kingdom.