Saudi Arabia, the largest and the fastest growing real estate market in the Middle East, hosted the kingdom’s first ever “Cityscape Saudi Arabia” at the Jeddah Center for Forums and Events between the June 14 and 16. Although the event came amidst the most severe global recession in recent years, Cityscape was a success. More than 100 companies and organizations exhibited and there were an estimated 5,000 visitors.
“I didn’t expect such a big success in June,” said Ahmad Al Hatti, chairman of Cayan Investment and Development, the main developer of Jeddah’s $600 million Lamar Towers.
Exhibitors believe that the show was more a business-to-business event rather than a business-to-consumer event. The event allowed company representatives to meet with their existing contacts and establish new business partnerships. For example, Yasser Abu Ateek, general manager at Dar Al Tamleek, said one indication of the nature of the event was that there were no products for sale.
“There are no products, and when there are no products there is no retail,” he said.
Abu Ateek said he expected Cityscape to be bigger, but he still found it to be well organized and a big success considering it was the event’s first showing in the kingdom.
The Gulf’s powerhouse
The real estate market in Saudi Arabia is still growing fast, and continues to be ‘the Gulf’s Powerhouse,’ as stated in a 2008 report by global real estate services firm Jones Lang Lasalle. This growth is fueled by the increase in its population and the massive investments by government. According to a construction report released by market research firm Proleads, the number of real estate projects in the kingdom is 812 and are valued at $543 billion. A total of 460 projects valued at $289 billion are under construction, 30 projects are canceled (1 percent), 23 are on hold (3 percent), and the rest are in the design or planning process.
“In Saudi Arabia there is a slight slowdown in the real estate activity, but there are not fluctuations, at least not to the extent we are seeing in the United Arab Emirates,” said Al Hatti.
The real estate industry is expected to grow by around 6.7 percent over the next five years, according to a Saudi Chamber of Commerce 2008 report. Its share of gross domestic product is also expected to grow as the country continues to diversify its economy away from oil related activities — which account for some 35 to 40 percent of GDP.
Large developers absent
Despite the steady growth in Saudi’s real estate market, the global recession could be felt at Cityscape. Although more than 100 developers exhibited, some big names in the Saudi market were absent from the scene. Dar Al Arkan did not exhibit, neither did Arriyad Development company, Jabal Omar Development nor other important developers.
John Harris, head of KSA Jones Lang Lasalle, said that this first Cityscape was a trial for the Saudi market, and the developers were testing the waters to see if they should participate next year.
“Cityscape is relatively new [in Saudi Arabia] so there is a wait-and-see approach from the big players who were absent this year. They want to see and observe what could be achieved from Cityscape to decide if they are going to be in next year or not,” Harris said.
Amro Nahas, acting chief executive officer of Al Oula International, said starting slow is normal.
“I didn’t find any big names at Cityscape, but even in Dubai, it wasn’t better when they started,” Nahas said. “Yet people showed much interest for the first time and the footfall was quite respectable.”
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Cityscape Awards
On June 14, Cityscape Saudi Arabia Real Estate awards were held and five prizes awarded to the most innovative and sustainable projects.
“Across all the awards..all we wanted [was] to recognize projects that had innovative and sustainable design, functionality with efficiency and we wanted to reward designs that showed cultural as well as environmental sustainability,” said Deep Marwaha, exhibition director at Cityscape Saudi Arabia, according to the exhibitor’s press release.
Emaar the Economic City seized two of these awards, the first being “Best Future Waterfront Development” for its project Waterfront Village at Baylasun. The second award for “Best Future Residential Development” was for the Hawadi project.
“Best Built Commercial / Retail Development” was awarded to Alandalus Property Company and Mohammed Ahabib Real Estate Company for their Al-Andalus Mall project.
The fourth award was for “Best future commercial / retail development” and was won by RA-YEK Real Estate for their project Al Ajlan Tower. The fifth and last award was for “Best Urban Design and Master Planning,” given to the developer Davis Brody Bond Aedas for the project The New Jeddah Master Plan.
Affordable housing needed
The issues Saudi real estate stakeholders stressed the most at Cityscape were the need for affordable housing and the new mortgage law in the kingdom. The Saudi population is expected to increase 32 percent and reach 33 million in the next 10 years, according to the Department of Economy. With no attention given by developers to the middle income segment — which constitutes the biggest chunk of the market — the housing shortage is increasing significantly.
According to the Saudi Arabia Investment Fund (SAIF), the housing sector accounts for more than 75 percent of the real estate activity in the kingdom, and 2.5 million housing units have to be delivered by 2020 to meet the demand. In value, SAIF says that $20 billion will be needed yearly to bridge the shortage gap.
“Saudi Arabia needs to consider the right balance between the development of high-end, medium and low-end,” said from Al Oula’s Nahas. “Municipalities have to play a role in planning and providing the right information for developers. Definitely the residential mid-market needs special attention.”
Currently, real estate developers are offering properties too expensive for the middle income segment. On the other hand, the low-income market does not have that problem because it can benefit from government support through the Real Estate Development Fund, the King Abdullah Housing Program and other means.
“The government has to find a solution [for the middle income segment]” said Abu Ateek.
The awaited mortgage law
The lack of affordable housing is not the only reason Saudis cannot buy a home. The shortage is also caused by the absence of a mortgage law, which makes long-term loans very hard to obtain. Until now, buyers had to either pay cash for their homes or take personal short-term loans to be able to pay. Sky high property prices and the lack of a mortgage law helps contribute to the fact that 60 percent of Saudis still do not own a house, according to the National Society of Human Rights in Saudi Arabia.
The country expects to implement a mortgage law by the end of the year, much to the delight of developers, banks, buyers and real estate agents.
“With the regulations, banks will be more comfortable in securing and guaranteeing financing for buyers,” said Al Hatti from Cayan Investment and Development.
The mortgage law is not the only initiative that the government has undertaken to protect the kingdom from the effect of the crisis. An Escrow law was also issued in February this year which prohibits the sale of off-plan properties without approval from the Real Estate Commission.
“The Escrow 2009 plan is not applied yet but it will guarantee for all parties, customers, financiers, developers and others a lot of work and that real estate will play a bigger role in the kingdom’s GDP,” Abou Ateek said.
“The good steps will pay back…and hopefully in the next six months we will see the fruits of all efforts made,” said Nahas.
Despite the crisis spreading its effect on the regional real estate market, Cityscape remains one of the most important property shows where real estate players gather and interact. And even though Cityscape in Saudi Arabia was not as vital as it possibly could have been, it is considered a good start, given the conditions.
“Taking the crisis into consideration, it was a fair turnout and a respectable success,” said Nahas.
Al Hatti added that “It feels like the end of the crisis and it is a positive feeling.”
