Saudi housing supply-demand gap narrows

RIYADH Tue Oct 25, 2011 1:57pm EDT

RIYADH (Reuters) - The gap between housing demand and supply in Saudi Arabia is narrowing as banks start to lend and government support boosts sector development, the director of Jones Lang LaSalle in Saudi Arabia said on Tuesday.

John Harris told the Reuters Middle East Investment Summit that housing supply in the biggest Arab economy had been restricted over the past three years, with investors and banks reluctant to invest in real estate projects after the global financial crisis.

Earlier this year, as pro-democracy protests swept through the region, Saudi Arabia's King Abdullah announced social spending programs estimated around $130 billion, which included building 500,000 new homes at a cost of $66.7 billion.

"Now the banks are lending again and people have more confidence so I think we are seeing people introducing and starting to construct new projects that were on hold for the past two or three years," Harris said.

"I can't quantify how far we closed the gap but if we had a shortfall by half, maybe it is only a quarter now; the gap is closing," he said.

Saudi Arabia has a fast growing population of 27 million people, most of whom are under the age of 30. Real estate service company Jones Lang LaSalle estimates annual demand for housing to be between 150,000 and 200,000 units per year.

The gap in housing, Harris said, is mainly due to a shortage of supply for lower- and mid-income families. In March, Saudi Arabia set up a ministry for housing to help build houses on government sites and provide free land, loans and prototypes for affordable housing.

"Until recently most big developments in Saudi Arabia were targeting the top ten percent of households. What has changed now is the government's ministry of housing has been created ... creating housing for lower income families," he said.

"Now they actually have substantial companies with big shareholders building 1,000-2,000 units at a time so we are seeing more supply there," Harris said.

Firms such as Kinan International Real Estate Development are planning to cater to mid-income customers. Kinan plans to develop up to 11,000 homes over the next six years in Jeddah, Saudi Arabia's second-largest city.

COSTS RISING WITH DEMAND

Saudi Arabia is also undertaking multi-billion dollar infrastructure projects including airport upgrades and building railways.

As a result of rising demand for construction materials in the next few years, developers are finding contracting prices rising quickly.

"From what we are getting black from our clients... I think we will see double digit increases in contracting prices," Harris said.

"The costs of the input into the housing market (rise) probably faster than the end user prices. We have seen land prices in the peripheral locations in big cities go up by 10-20 percent over the last year," he added.

(Additional Reporting by Marwa Rashad; Editing by Helen Massy-Beresford)

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