Oil bonanza no relief to Saudi would-be home owners

By Souhail Karam

RIYADH, Sept 3 (Reuters) - Owning a home has never been more difficult for most Saudis.

Soaring construction costs, land speculation, lack of bank financing and poor government assistance have aggravated a housing deficit estimated at some 1 million homes and driven rents higher.

Realtors say the percentage of home ownership stands at about 30 percent, making it the lowest among the oil-driven economies in the Gulf Arab region. Saudi Arabia has 5-6 million homes.

"It is a challenge they have to address when you have 65 percent of the population on rent," said John Sfakianakis, chief economist at SABB bank, HSBC's Saudi subsidiary.

"Many Saudis feel there is an obligation that during this economic boom people have to be housed ... If people don't have equity and the only thing they have is, say, a car, then what is it that they have to pass down to the next generation?" he said.

It is an awkward situation for policy-makers in the world's No.1 crude exporter that exposes some of the weaknesses of its wealth distribution policies, at least on a regional scale.

Hopes, raised over the past six years by the oil price surge, suffered after a stock market crash in 2006 wiped out savings for tens of thousands and forced many to abandon plans to own a house.

Now, as potential buyers and investors await the government's approval of a mortgage law -- almost a decade in the works -- doubts persist on how effective this law would be in widening the scope of home ownership in the kingdom.

Abdul-Rahman Zamil, a former government minister and member of the advisory body that drafted the law, told al-Madina newspaper in July that the law does not cater for the 85 percent of Saudis who earn less than 60,000 riyals per ($16,000) year.

The full text of the law has yet to be published.

AFFORDABILITY

"We have a supply/demand disconnect. Demand continues to grow and supply is continuously lagging. We will continue to have appreciation of property prices in an under-supplied market and this will not fix an important part of the inflation problem, which is rent," Sfkianakis said.

The Saudi property market now fits more with the needs of high-income households than those with middle-income and below, investment bank Rana Investment said in a report last month.

"Saudis with middle and low income still suffer from a deficit in available housing units that suit their savings," Rana said.

The government has launched plans to build four fully-integrated economic cities which will showcase a modern face of the conservative kingdom that matches the glitter and the heights of Dubai's skylines.