Efforts to make home ownership in Saudi Arabia more accessible and galvanise activity across the building, services and financial industries received a boost last month with the launch of a new programme of funding and incentives.
In early February Saudi Arabia unveiled a SR120bn ($32bn) housing programme that will make subsidised credit available to prospective homebuyers and offer support for property development.
The initiative, which is one of 12 executive programmes devised to help the Kingdom achieve targets laid out in its long-term development plan, Vision 2030, also includes incentives aimed at encouraging lenders to broaden their mortgage portfolios, with the aim of expanding the domestic mortgage market to SR502bn ($133.8bn) by the end of the decade.
Highlights of the programme, which runs until 2020, include a loan-guarantee scheme, backed by SR18bn ($4.8bn) of state funds, and SR12.5bn ($3.3bn) for down payments on homes.
An additional SR39bn ($10.4bn) has been allocated for interest-free loans and incentives for property developers in a bid to encourage industry activity, with a specific focus on more affordable properties priced between SR250,000 ($66,700) and SR750,000 ($200,000).
The Kingdom is looking to add at least 125,000 new residential units to national housing stock this year, and aims to increase the number of available homes to 480,000 by 2020 and 1.2m by 2030, which would boost ownership levels from their current rate of 50% to 60% and 70%, respectively.
Offering a variety of suitable units in terms of size and price is one of the key objectives outlined in the new programme. Other targets include enabling all citizens with a source of income to access financing options at the lowest possible cost, establishing regulations and legislation for the housing sector, improving related services and creating an obstacle-free path to home ownership.
Major role planned for private sector
The initiative marks a shift in national policy; the state is set to move away from its traditional role as the sole housing provider and hand the private sector a bigger part in project rollout.
Increasing private involvement in the affordable housing segment, in particular, is high on the national agenda, according to Majed Al Hogail, the minister of housing.
“We are radically transforming the housing industry, with the aim of achieving a balance between self-builds and real estate development, while making it more attractive for the private sector to target demand for lower-income housing,” he told OBG earlier this year.
White land tax takes effect
The government has made moves to unlock the private sector land bank by introducing a 2.5% tax on undeveloped land in mid-2016. First instalments of the levy are due this year, through which the state expects to bring in an estimated SR1bn ($266.6m) to SR2bn ($533.3m) in 2018.
The tax on so-called white land is aimed at encouraging owners to undertake construction work on undeveloped plots, rather than hold on to the asset to benefit from anticipated increases in value.
The reforms are already proving to be effective, with an increase in the number of properties entering the market and prices down by an average of 18.5%, according to estimates cited in the media.
Rising demand could drive up prices, input costs
While housing could become more accessible, concerns have been voiced that prices may shoot up if demand outpaces supply.
In response, Al Hogail said the government would work to stave off a bubble by monitoring the market and making adjustments to policies if and when needed.
“When you launch a very strong programme like this, you expect the price could increase,” Al Hogail told local press. “You could expect more defaults, because you are lending to people who don’t have steady income.”
Input costs are another inflationary concern. The price of both labour and materials is set to rise in 2018 on the back of higher levels of demand, driven by the accelerated rollout of national infrastructure programmes, which include transport, utilities, industry and tourism initiatives.
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