Saudi Arabia’s housing shortage is nothing new, but developer Maskan Arabia is looking to tackle the issue through the introduction of new construction techniques and materials. CEO Hossam Al Rashoudi speaks to Melanie Mingas.
A study conducted by Maskan Arabia last year, concluded that less than 10% of Riyadh’s required 40,000 units of affordable real estate were handed over in 2011.
It’s a single element in a myriad of problems currently affecting Saudi Arabia’s real estate industry, which Maskan Arabia CEO Hossam Al Rashoudi traces back to the unregulated land prices and resulting lack of trust among traders, developers and investors, linked within the Kingdom’s industry.
“Today we lack an elevated quality in housing developers in Saudi Arabia and most developers investing in projects are producing sub-standard projects, and the high price of land is continuing to have an effect on this,” Al Rashoudi says, commenting that the newly introduced mortgage law alone will not be enough to tackle the issues.
Maskan aspires to “create a difference” in its sector, and reflects its ethic even in the management structure; focussing on a small but strong workforce of 70 specially skilled managers. As co-founder, it was Al Rashoudi who developed the business plan, vision and mission.
Last month, the company signed a project financing contract worth SAR 283 million with BLOMINVEST, the National Commercial Bank and IBAR Development, to build 400 housing units around Riyadh.
The project will add to a portfolio that has grown steadily since the company was established in 2008; 200 residential units have already been completed and the development of a further 200 will begin this year, in addition to the BLOMINVEST deal.
According to Alahli Bank, also involved in the new contract, the real estate sector is second only to oil in the development of the country.
“Saudi Arabia’s other sectors, such as the financial, commercial and industrial, are all regulated. Real estate is one of the biggest sectors and yet it is unregulated,” Al Rashoudi says.
“Saudi Arabia is bigger than all the GCC and all its real estate markets combined. You cannot bring in the procedures used in other markets because they are not tailored to its demands. You need experts to devise the regulations; experts who understand the local requirements and can devise regulations that are Shariah compliant,” he continues.
While regulatory requirements continue to grow, so too does the need for new residential developments.
Current real estate stock is not only in short supply, but cultural factors are driving change in the social landscape, with needs for smaller and individual units also increasing.
“The people most in need of housing are Saudi nationals. These people need privacy in their own homes and some require smaller, individual units, so we do have a plan to explore multiple unit development later this year,” Al Rashoudi explains.
Observing the fact that the average age of nationals is 21, and that land values have increased 100% over the last five years – 30% over the last 12 months alone – Al Rashoudi summarises the reasons for change in three points: new families are being formed; families require different sized accommodation to previously; and domestic and foreign families are being located to new cities and demanding their own accommodation.
With land prices hindering many solutions, one method through which Maskan is attempting to solve the problem is by using new construction techniques and materials, to keep prices low.
For Al Rashoudi, all the Kingdom’s housing issues can be tackled with a single solution; regulation.
Vast plots of land are owned by businessmen, who face no taxation or service charges yet attached huge price tags for anybody who wants to buy the land for development.
Saying that taxation on the land alone would provide greater incentive to sell, he adds that without regulation developers will leave.
“It’s good to be regulated and regulation is needed to improve the market and assist it in maturing. This can all be solved in the near future, but if we continue like today developers will be forced out of the market. The new mortgage law, once introduced, won’t be enough to solve this.”
It’s not just the private sector losing out. Al Rashoudi says municipalities are facing huge additional costs in infrastructure and related projects, which must by-pass land that is privately owned and too expensive to build over or through.
“The real estate market in the Kingdom needs to mature. It is not regulated and therefore does not have the legislation needed to guide it. As a result land prices are dictated by landlords.
“The real estate market in the UAE is a very good model, but totally different. The UAE market is a speculator’s market and the Saudi Arabian market is based on real demand. The UAE has regulations and taxation structures, but they haven’t got the regulation on the financial side of things to back up.”
The problem may be cyclic, but the bottom line according to Al Rashoudi is “trust, trust, trust”; generated by growth in market, which can only happen if developers can afford to build.
Adding to that is the fact that such a young market can seldom afford to have its reputation tarnished – and trust shattered – by bad developments.
“Housing is apriority for King Abdullah, and I think that having such political support from government will make it much more possible to improve and implement change,” Al Rashoudi says.
“It’s a young industry and the current practices are hurting it.”