Robust realty reforms, easier financing norms drive homebuying in Saudi Arabia

Plans laid out by Saudi Arabia’s Crown Prince Mohammed bin Salman to boost home ownership to 70 percent by 2030 have seen a flurry of government incentives, new housing developments and a surge in residents and expatriates looking to cast anchor in the Kingdom.

Speaking to Al Arabiya English, experts, real estate companies and prospective homeowners from across the Kingdom highlighted multiple reasons that have led to an increase in demand for home ownership. A range of initiatives – many in collaboration with the private sector – have improved the supply of housing units in the country. In addition, easy access to home finance for Saudi families and reformed housing and planning policies have contributed to a rise in home ownership.

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In 2020, Saudi Arabia’s Public Investment Fund (PIF) formed ROSHN Real Estate, tasked to meet the growing demand for housing in Saudi Arabia.

Chaired by the Crown Prince, ROSHN plans to spend tens of billions of pounds to build integrated communities that will be home to more than 2.2 million people by 2030.

Like government-backed property developers in neighbouring UAE, which has multi-billion-dollar realtors such as Nakheel, Emaar and Meraas, ROSHN is working on mega-projects in Riyadh, the Eastern region, Jeddah and Mecca that aim to offer “Saudi residents a new way of living,” said ROSHN Group CEO David Grover.

He said Saudi Arabia’s potent combination of huge investments and building-friendly planning laws makes it one of the most vibrant real estate and construction markets in the world.

“Saudi Arabia is embarking on a massive home-building journey with the goal that 70 percent of Saudis will be able to own their homes by 2030,” he said. “This is made possible by the Saudi Government’s incredible support for the real estate sector,” Grover said.

According to a 2022 PwC report, ‘Transforming the Housing Sector in Saudi Arabia,’ the government’s policies and initiatives, including the activation of various financial products, are driving the sector’s growth.

Reforming the housing sector in the country and enhancing access to suitable housing for Saudi families are key components of the Kingdom’s Vision 2030 initiative.

Since 2017, when approximately 1.6 million Saudi nationals were awaiting government housing programs, the Ministry of Municipal and Rural Affairs and Housing (MoMRA) has launched several initiatives to expand affordable housing options and facilitate access to financing alternatives.

Earlier, high mortgage interest rates and lengthy waiting lists for government-backed interest-free loans made it challenging for Saudi home buyers to fulfil their dreams of owning a house.

During an interview on the Liwan Al Mudaifer Show in 2021, the Crown Prince had emphasized that home ownership was one of the most significant challenges that existed prior to the implementation of Vision 2030. He said: “We had been struggling with a housing problem for 20 years. The level of housing had stagnated, remaining between 40 and 50 percent.”

According to the Crown Prince, the central goal of Vision 2030 is to “create a thriving country where all citizens can achieve their dreams, aspirations and ambitions. Our commitment extends to becoming a leader in providing opportunities for all, including high-quality services such as employment initiatives, health care, housing and entertainment.”

The Vision highlights that “housing serves as the fundamental asset capable of shaping and influencing the vibrancy of families, communities and society at large.”

By transforming the housing sector and increasing investments in housing, Vision 2030 aims to achieve multiple objectives: Generating sustainable job opportunities, boosting private sector contributions, involving non-governmental organizations (NGOs) and fostering economic growth.

MoMRA has worked closely with the private sector to facilitate the ownership journey, incentivise developers and provide housing solutions and products that meet the needs of the citizens at competitive and subsidised prices.

According to the PWC report, some of the incentives include the Saudi Real Estate Refinance Company (SRC) – set up by PIF in 2017 to inject liquidity into the real estate market and improve homebuyers’ access to sustainable financing solutions – while a VAT waiver on real estate sales (which earlier attracted basic VAT of 15 percent) was abolished in 2020. In its place, a real estate disposal tax of 5 percent was introduced and an exemption for first-time buyers of properties worth up to SAR 1 million ($270,000) was put in place.

Additionally, an initiative known as the ‘White Land Tax’, which applies a 2.5 per-cent tax on undeveloped residential land with the intention of improving the supply of land for construction, was launched.

The Saudi central bank has also had a significant impact on the growth of the housing sector, reducing the minimum down payment required for property purchases from 30 percent to 5 percent of the purchase price.

Other recent reforms include plans to allow foreigners and expatriates to own property, simplifying the property registration process and strengthening the mortgage system to make homeownership possible for new generations of Saudis.

The initiates saw an instant ripple effect across Saudi Arabia’s housing market.

In 2020, the rate of home ownership in KSA reached 62 percent – well on track to meet the target of 70 percent by 2030.

The mortgage market in Saudi Arabia has also grown significantly. In 2020, as many as 295,590 contracts worth SAR 140.7 billion were offered to Saudi families.

Saudi Arabia has a real estate market that will increase in value, resident Abu Muhammed (name changed on request), a prospective home buyer, told Al Arabiya English.

The 46-year-old of Yemeni origin, who was born and raised in Saudi Arabia and moved to the capital city Riyadh more than 15 years ago, is looking to purchase a two or three-storey villa to settle down in the country with his wife and child.

“Saudi Arabia is a great place for a family to live in,” he said.

Muhammed now lives in a rented three-bedroom house in northern Riyadh’s al-Sahafa neighborhood. He now has plans to purchase a house north of Anas Ibn Malik Road, also in northern Riyadh.

For Muhammed and his family, Saudi Arabia is home. “And it’s a place that is definitely increasing in value in terms of its real estate assets,” he said.

“The economy is stable, unlike a lot of other places, and it has ambitious plans. The policy platform in the shape of Vision 2030 offers a better visibility for the future direction of the economy. It offers a sense of certainty,” the expat said.

“It’s also a place with a lot of economic opportunity, the crime rate is one of the lowest in the world and in the last few years, the increasing amount of entertainment and recreational opportunities have made it even better,” he added.

As a non-Saudi national, Muhammed must adhere to the current rule of property ownership where foreigners may only own one residential property, which must be used as the primary residence. He intends to use this provision to purchase a property.

However, he hopes that earlier reports of the Kingdom opening up its doors to foreign investors without any restriction turn out to be true. “That’s something everyone is looking forward to – not only those who are looking to buy a house, but also investors and big real estate developers.”

Muhammed, who works in the arts and culture sector, said many of his peers are considering buying a house in the Kingdom. They are awaiting more options and changes to the laws surrounding property ownership.

In addition to the growth prospect of a Saudi property, Muhammed also credited the Saudi Ministry of Housing for restoring order in the housing market that he said was previously susceptible to misleading listings and price manipulation.

“After COVID-19, they issued a new law that said if you’re in the business of real estate marketing, you must put your official national ID and serial number on the listings. Things must be clear, transparent and legitimate.”

He said: “In the past, unfortunately, a lot of real estate brokers would hike prices artificially in a certain neighborhood. Under the new realty rules, the government can keep track of who is actually selling a property and at what cost, thereby negating any mistreatment of public trust.”

For now, Muhammed is waiting for interest rates to drop and for new construction projects to be announced so that there are more options to choose from.

It’s not just home buyers, but even real estate companies are seeing a surge in interest among prospective homeowners.

Ramzi Darwish, the Saudi Arabia head of Savills, a real estate company, told Al Arabiya English that there is a “surge of interest among expat and local communities to invest in realty in Saudi Arabia,” with the demand mostly centred around Riyadh, the holy cities and the new giga-projects.

“Locals have shown increased interest within the growing cities of Saudi Arabia, particularly in Riyadh and Mecca, whereas expatriates are leaning towards the recently announced giga-projects in Mecca and Medina,” Darwish said.

“Currently, there are certain conditions for property ownership by foreign nationals in Saudi Arabia, including obtaining licenses and approvals from authorities and undergoing other legal procedures,” he added.

Darwish said Saudi Arabia’s Real Estate General Authority (REGA) has recently announced upcoming updates to property ownership regulations that will allow foreign nationals to directly, and more easily, buy property in both, the larger Saudi market and markets of Mecca and Medina, which were traditionally open to Saudi nationals only.

“There is one clear factor that has enabled this significant increase in interest in such a short period of time, which is the introduction and legislation of off-plan sales. This has helped raise homeownership rates faster than the rate of new homes coming to the market,” he said. “An additional supporting factor would be the in-troduction of the new subsidised housing loans from the Saudi Real Estate Fund, in partnership with local banks,” Darwish added.

Saudi Arabian national Tala Abdulrahman told Al Arabiya English that she was also in the process of buying a home in the Kingdom and had been looking for a unit in Riyadh.

She advises fellow house-hunters to do their homework before getting on the property ladder.

“The buying experience in Saudi Arabia for someone who has been out of the country for a while (in terms of searching) can be tiring,” she said. “We’ve tried real estate apps/websites and had a mix of disappointments and surprises when we compared what we saw in reality with the photos. As someone who doesn’t know much about it, I find it harder to understand the buying process and depend on people around me to share their knowledge on the matter,” Tala said.

“I didn’t depend on the real estate agencies alone, there’s a lot you can find on social media (TikTok mostly) too, where you can have a clear viewing prior to taking the first steps towards visiting the site. But patience is the key here,” she added.

However, she praised the government initiatives that have extended a helping hand to Saudis in getting their keys to a property.

“For Saudis, there’s a lot of support provided by the government and the banks to ease the process,” she said.

“Ownership loans are provided up to SAR500,000 at very low interest rates and on an easy payment plan,” she further said.

Tala also highlighted the logistical support that comes along with financing solutions for homebuying. “There’s support with the air-conditioning units. As a Saudi, I’m eligible to buy six AC units at a discounted price for my house/apartment.”

Another developer looking to cash in on the rising demand for homes in Saudi Arabia is Dubai-based LINQ Modular, which is using modular construction that works by stacking up separate Lego-type premade sections, or modules, to form a complete building.

The company then sends factory-finished hotels and homes to the sites where they are bolted together.

The Alec-owned company doesn’t use concrete, instead utilises steel, timber and organic waste materials that are compressed to form durable slabs.

The general manager at LINQ Modular, Bashar Kayali, told Al Arabiya English that with pressing housing demands across the GCC – as well as worldwide – modular construction could help solve the present-day demand for quick-to-erect housing, built in a more sustainable fashion, in line with ambitious regional Net Zero goals.

The company, he said, has also seen “significant” demand from Saudi Arabia, which is one of its largest markets.

“It is a new technology of moving construction from site to factory and it is done in a controlled environment, far from the site where you are under so many challenges related to logistics. So, modular is much leaner, much like the automobile industry, where the products come almost ready-made with far less wastage,” Kayali said.

The modules are assembled in a huge factory at Dubai Industrial Park, with the finished blocks then transported directly to a building site – whether by road or ship – in Saudi Arabia, where they are bolted together to create a home, hotel or office space.

“We have an ongoing project in Saudi Arabia and clients are really starting to under-stand the value of modular structures,” he said, adding that projections suggest global demand for modular construction will soar by between six to eight percent annually.

“Saudi Arabia is a big market for us, where we see demand for modular construction, especially in areas where you don’t want to make any kind of damage to the surroundings,” Kayali said.

“When you go for normal traditional construction, it’s a huge operation, but when you build on a beach or an island, when you build in areas where logistics become a challenge, the modular option allows you to transfer the entire operation to a controlled environment. You get the entire unit readied off-site and just click it together at the project site,” Kayali further explained.

The longevity of the material and the cost are similar to traditionally-built properties, but the process is generally significantly faster with homes that can be built in under two months.

“Modular construction is a solution that could provide real responses to immediate demand, for sure,” he said. “There is demand for housing in Saudi Arabia and all over the world and that’s why you see the modular industry growing,” Kayali added.

With additional reporting by Ayush Narayanan, Al Arabiya English

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