A shortage of affordable homes in Saudi Arabia is likely to become more acute as a global lull in oil prices forces the government to cut back on projects.
According to property broker Knight Frank, budget cuts prompted by the oil price crash are prompting the country’s ministry of housing to scale back its affordable housing development programme.
The ministry has 187 affordable housing projects in its pipeline, providing 233,651 homes in an attempt to solve the country’s escalating housing crisis.
Even before the oil shock, this number falls way short of the estimated national shortfall. Brokers say 400,000 “affordable homes” would be required to satisfy demand from middle-income households earning between 6,000 (Dh5,875) and 20,000 Saudi riyals a month – two thirds of the population.
According to Knight Frank’s 2016 market review, published this week, the ministry is likely to cut back on the development programme as it searches to find extra cash to plug the gap in its finances left by lower revenues from oil.
“2016 is expected to see a more selective approach to the development of residential real estate projects,” said Dana Salbak, an associate partner at Knight Frank. “Lower oil prices, reduced market liquidity and a tightening budget are likely to see the re-prioritisation of projects with direct emphasis on the delivery of affordable housing and other critical infrastructure.”
The Saudi Arabian government has increased its efforts to build more affordable housing since the Arab Spring in 2011. These include an announcement that it would build 500,000 affordable housing units, the formation of a real estate financing company to improve access to finance and the introduction of a new mortgage law.
Despite the plans, brokers say that few homes that are truly affordable for most Saudis have been built. Just 30 per cent of Saudis own their own homes compared with a global average of 70 per cent.
Data from the Saudi Real Estate Development Fund reveals that while real estate loans trended up sharply from 2012-14, the rate of growth slowed throughout last year.
Earlier this year the government eased strict new loan-to-value ratios for mortgages that had required buyers to make a 30 per cent down payment in a market where most people cannot afford their own home.
According to Knight Frank, average house prices and sales volumes in Saudi Arabia’s three biggest markets – Riyadh, Jeddah and the Eastern Region – continued to slow during the first quarter of the year.
The broker said that demand had shifted from sales to rentals as households struggled to come up with deposits. This meant that in Riyadh sales prices remained flat during the first quarter and the number of transactions fell by 10 per cent compared with the same period a year earlier.
In April, the broker JLL said that it expected Riyadh house prices to rally about two years after the easing of loan to value ratios.
Knight Frank, however, said that, over the longer term, the country’s recently announced 15-year National Transformation Plan to further diversify the economy would have a positive effect on the housing market. It also praised the country’s new white land tax, which aims to reduce property speculation by penalising owners of vacant land in urban areas who do not develop it.
Follow The National’s Business section on Twitter