JEDDAH – Real estate is the fastest growing sector in Saudi Arabia with more than SR1 trillion in investments. The growth is said to be the second highest in the world after Shanghai, according to Solaiman Al-Majed, Chairman, Tanmiyat Group.
But the burgeoning market needs to be regulated and organised in order to avoid scams, of which there have been quite a few, as well as achieve continuous progress and maintain investor confidence.
Apart from businessmen, thousands of ordinary Saudis have invested their money in real estate, in the expectation of large profits. But according to financial analyst Abdelmenem Jamil Addas this was not a healthy trend. “People think that they are seeing the dawn of a new era in the real estate market, that it will bring unimaginable riches and prosperity to all. This overconfidence will have dangerous consequences on our economy,” he added.
He said that the recent rise in real estate prices was being fuelled by artificially low short-term interest rates and a huge increase in bank loans. “We should not forget that as soon as interest rates rise, the rally in real estate prices will come to an abrupt end,” he explained. “Any market that is rising because of an increase in bank’s loans ought to be viewed with great caution,” he said.
According to Dr. Abdul Aziz Turkistani, a real estate expert, the real estate boom has led to the creation of many professional companies. “These firms,” he says, “are working to improve their organisational structure and marketing strategy in order to transform the sector into a successful industry.” He felt that real estate companies in the Kingdom should form an association to promote the industry with a view to facing competition from foreign firms.
Wafa Al-Ghamdi, an expert in the field, said there was a professional approach and a chaotic way of developing and marketing real estate. The professional approach relied on market studies, market analyses and meeting customer demands. “The Saudi real estate market still depends on old methods and does not meet customer demands, especially middle and lower class families,” she said. Among the problems the Saudi real estate market faced was the domination of a few investors, lack of studies, lack of laws protecting the investors and customers, lack of transparency in dealings and the reliance on rumours to promote properties. “There is also lack of market awareness among customers, particularly women, and agents take advantage of the women’s lack of knowledge,” Al-Ghamdi said.
A Jeddah Chamber of Commerce and Industry (JCCI) working team recently made a number of proposals to make the business transparent and foolproof protect the rights of investors and ensure steady growth.
The boom has been attributed to the continuous repatriation of Saudi funds from overseas and increasing liquidity supported by soaring oil revenues.
Government projects and initiatives provide major opportunities for the private sector. They also continue to ensure that the construction industry remains the largest non-oil economic sector in the Kingdom. It was estimated to have contributed more than $15 billion to the national economy in 2005.
Recognising the need to diversify and reform its economy, the government has provided incentives and relaxed laws. This has boosted the private sector’s enthusiasm for heavy investments in residential and commercial buildings. It is estimated that 555,000 individuals will need new housing annually. This gives ample scope for developers. It equates to 100,000 new residential units a year. Additionally, the Kingdom is also developing its tourism industry (largely local and religious tourism) and it is expected to contribute $22 billion to the economy by 2023.
The Kingdom’s new Real Estate Law allows non-Saudi residents to own real estate for their private residence with the permission of the Interior Ministry. It also allows ownership of real estate by foreign investors to conduct their business activities and to own properties needed for their accommodation and that of their employees. The law also entitles investors to rent out property.
According to Abdul Monem Murad, chairman of the real estate development committee at JCCI total investments in 53 real estate share businesses across the country have reached more than SR14 billion.
Abdul Rahman Al-Jeraisy, chairman of the Riyadh Chamber of Commerce and Industry (RCCI), is spearheading a joint venture with other businessmen to set up a large real estate company in Riyadh with a capital of SR30 billion. He said the new company would have a strong presence all over Saudi Arabia. His estimate is that five million housing units would be required by 2010.