A pivotal change in the Saudi real estate market is expected in 2013, according to a number of financiers and developers specialized in this field.
Al Eqtisadiah newspaper pointed out that this year will witness a boom in the real estate market, as housing projects with affordable prices for citizens with limited income will be implemented, stressing that growth in this sector will exceed 20 percent.
Meanwhile, in a related development, another study by Banque Saudi Fransi showed that public and private construction companies will need to build 275,000 housing units annually until 2015 to meet the demand for 1.65 million new houses.
There are a number of indicators that support the aforementioned point of view, namely the expected approval of mortgage regulations in the first quarter of 2013, which will provide greater initiative and confidence to financing firms to further boost mortgage funding. In addition, another indicator is the entrance of new developers to this sector.
Despite the lack of data on the real estate sector and mortgages, experts said that banks and financial institutions granted funds worth between SR 15 billion and SR 20 billion in 2012 and large sums of money were channeled by the Real Estate Development Fund for the direct purchase of houses.
In the same context, real estate experts say that 2013 will witness stability in the rental prices of villas, as landlords will fear the competition generated from the new housing projects.
Commenting on the issue, Yasser Abu Atiq, CEO of Dar Al Tamleek said: "We are very optimistic about this year. We think that mortgage finance will stimulate the sector, especially in the aftermath of the regulations issued last July and the draft of Saudi Arabian Monetary Agency (SAMA) that was issued in November."
"The real estate market is on the threshold of a new era. It will become a really organized industry, excluding all other unproductive parties," he added, pointing out that the regulations to be issued will protect citizens as well as financing institutions. "This will balance issues and rights of all parties concerned, as financing institutions used to impose strict terms to protect their rights, while some individuals took advantage of certain gaps. But with the existence of regulations, the sector will be further organized," he said.
"We expect to face a big problem concerning financing volumes, with the figures we see and that of the industry, and the economy in general," he noted, stressing at the same time that in order to create proper and financially sound plans, accurate figures must be provided, but no such figures are available.
Khalid Almobid, general manager at Bussma Real Estate Management Company, reaffirmed that 2013 would witness a boom in the Saudi real estate sector. "We expect the delivery of projects by the Ministry of Housing in several regions in the Kingdom," he added.
The Banque Saudi Fransi study said the new mortgage regulations would serve to stimulate the growth of the real estate market in the medium term. However, the bigger challenge lies in enhancing the ability of citizens to buy houses, due to the core problem of gap between real estate prices and ordinary citizens' incomes. The high cost of land is currently inhibiting the ability of low and middle-income earners to build or purchase houses. The study therefore highlights that the situation of the residential real estate market is complex in the short-term, and might preclude the Saudi youth from owning private property.
Another study recently conducted by Al Sharqiah Chamber said the new mortgage regulation would encourage an increase in the number of installments and mortgage financing companies, which is expected to reach more than 50 companies in the first year of implementing this law. "This will result in widening the base of opportunities for funding and would lead to an increase in the supply of residential housing, accompanied by a decline in interest rates," the study said.
The study forecast a number of positive effects of the adoption of the mortgage regulation. First and foremost, it will increase the proportion of credit allocated by commercial banks to finance the sector.
In addition, the guarantees provided by the mortgage law will be a catalyst for developing related programs in banks and innovating new transactions for mortgages, as well as creating competition between banks to attract a larger segment of customers, which will ease the burden on the Real Estate Development Fund. This will also allow the fund to dedicate its effort to the benefit of citizens with middle income, so that they can own their houses.
Moreover, other activities related to building and construction will see a recovery as a result of the demand on building, the study indicated.