Reforms and financing revitalise Saudi Arabia's affordable housing programme


The government is undertaking promising reforms and investing in new developments in order to bolster the volume of affordable housing available on the market, in turn increasing the homeownership ratio among nationals from its current level of 47% to 70% by 2030, as the government seeks to meet demand and accommodate a burgeoning young population. To achieve this, the Ministry of Housing (MoH) is working alongside the Public Investment Fund (PIF), Saudi Arabia’s $230bn sovereign wealth fund, as well as foreign companies through public-private partnerships (PPPs), to build 1m affordable homes by 2023. Positive reforms in the financial sector are also lowering the costs of borrowing and barriers to accessing mortgages for first-time home buyers. In 2018 alone, the government was on target to build 300,000 new houses and is well on its way to achieving its target of 52% homeownership by 2020.

Demand Outpacing Supply

An estimated total of 1.6m Saudi nationals are currently on waiting lists for government housing programmes, and demand for affordable housing is only growing. In 2015 the MoH estimated that it would need 3.3m more houses by 2025 to keep up with the Kingdom’s growing population, which is set to increase at an annual rate of 2.5% to reach 37m by 2025, up from 31m in 2015.

Most of the population is under the age of 30 and a 2017 report by HSBC highlighted the challenges facing millennials in purchasing their first home, with slow salary growth and house price inflation the greatest barriers. The authorities are focused on alleviating such challenges facing young buyers in the country’s housing market.


Several recent reforms, including the white land tax and regulatory changes to mortgage requirements are creating a strong platform for the government’s bold homeownership growth targets. The white land tax of 2.5% on unused plots, which was introduced in March 2017, has already prompted the sale of some major tracts of land to be used for housing development. Much of this land is in cities such as Riyadh, Makkah and Jeddah, where the limited availability of land has led to widespread informal housing settlements. For example, as much as 40% of land in Riyadh had previously been identified as unused, and therefore liable for tax.

Other major reforms have addressed the weakness of the country’s mortgage market. The government only introduced a law in 2013 which allowed commercial banks to offer mortgage financing for the first time. As such, the mortgage market is still nascent, small, and dominated by commercial and state banks. Moves by the Saudi Arabian Monetary Authority (SAMA) to increase the mortgage limit for housing loans from 75% of value in 2016 to 85% in 2017 and then to 90% in early 2018 are expected to make home loans more accessible. The emergence of six non-banking financial institutions (NBFIs) to go along with the 13 commercial banks in the country, is also making the mortgage market more competitive. Mohammed Badat, chief commercial officer at Bidaya, a Saudi home financing institution told OBG, “Commercial banks currently control around 90% of the yearly incremental retail mortgage business-to-consumer market.” However, assistance from the government is helping NBFIs increase their offering to first-time home buyers.

Restructuring & Refinancing

Financial products tailored to first-time buyers and greater financing for private lenders are just some of the positive structural changes taking place in Saudi’s housing market. The Real Estate Development Fund (REDF), a $49bn government lending fund which reports to the MoH, has created several affordable housing products over the past few years to facilitate greater homeownership. Some of these products include generous subsidies for consumer mortgages, such as the Subsidised Finance Programme, which covers mortgages of up to SR500,000 ($133,300) and can be applied for at commercial banks or NBFIs like Bidaya. Under the down payment guarantee, a first-time home buyer is only liable to make 5% down payment on the value of the home, with the REDF covering a further 5% as a down payment guarantee to make the mortgage transaction more affordable.

“This is a fantastic product,” Bidaya’s Badat told OBG, noting that by involving commercial banks and NBFIs the product had reduced mortgage application waiting times where “previously there used to be huge queues of a minimum of two years for beneficiaries who had applied for loans.”

The Saudi Real Estate Refinance Company (SRC), created in 2017, has been tasked with increasing liquidity in the mortgage market, primarily for NBFIs which do not have access to as much capital as commercial banks. With funding of SR5bn ($1.3bn), which is set to increase to SR13bn ($3.5bn), SRC is helping NBFIs finance their lending. All in all, the government has set aside SR120bn ($32bn) to finance subsidised loans. Bidaya and SRC recently signed a SR1.5bn ($400m) agreement to finance a long-term fixedrate (LTFR) loan scheme.

“In a rising rate economy, which we are in currently, SRC came in with a product where they have fixed the rate for 20 years, which NBFIs like Bidaya can take advantage of,” Badat told OBG. “This is something mortgage lenders have been waiting for over 10 years.” In addition, SRC is actively purchasing mortgage portfolios from NBFIs, including 20-year LTFR mortgages. These measures further provide some level of assurance to lenders.

Housing Developments

While regulatory changes are hitting all the right notes, the government is also on a major investment drive to build affordable housing developments. In February 2018 the government unveiled a SR120bn ($32bn) new housing programme, much of which is focused on housing construction. Since then, the government has signed a host of different PPPs, some worth billions of dollars, for international companies to construct houses in the country. By May 2018 the housing ministry had secured eight new PPP agreements and distributed 105,174 affordable residential products with a target of 300,000 by 2030.

Major contracts include a multibillion-dollar agreement with US-based consortium Global Business Ventures, which in March 2018 won a licence to build 25,000 housing units for a major mixeduse residential development in Riyadh. This follows on from reports in 2017 that the government was enticing South Korean, Chinese and US companies with over $100bn in affordable housing construction contracts. Companies using the latest technology to build low-cost, semi-prefabricated houses are also being prioritised. For example, in August 2017 Red Sea Housing Services Company, a Saudi Public Joint Stock Company, signed a memorandum of understanding with US multinational engineering firm AECOM to fast-track construction of modular affordable houses as the government looks to close the affordable housing gap.

Growth Prospects 

Attractive new borrowing regulations and government financial backing are finally giving Saudi nationals access to loans, which is in turn increasing demand for new housing developments. While the government has announced major spending on affordable housing developments in the past, the current set of plans look more comprehensive. Greater availability of land, attractive PPP offerings and reforms aimed at cutting red tape, such as a reduction in the approval and licensing process for new housing schemes from 730 to 60 days, bode well for the coming years. As such, residential construction developments, including affordable housing projects, offer significant investment and growth prospects in the country’s real estate and construction sectors.

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The Report: Saudi Arabia 2019

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