{"id":12544,"date":"2017-07-27T00:00:00","date_gmt":"2017-07-27T00:00:00","guid":{"rendered":"https:\/\/cms.alj3.clients.lemonhq.io\/perspectives\/building-saudi-arabias-future-communities\/"},"modified":"2026-03-19T12:36:54","modified_gmt":"2026-03-19T12:36:54","slug":"building-saudi-arabias-future-communities","status":"publish","type":"perspectives","link":"https:\/\/cms.alj3.clients.lemonhq.io\/en\/perspectives\/building-saudi-arabias-future-communities\/","title":{"rendered":"Building Saudi Arabia’s Future Communities"},"content":{"rendered":"

Across Saudi Arabia and the wider MENA region, one challenge to socio-economic development is the increasing demand for suitable housing from middle-income earners.\u00a0 A family space of their own is a key aspiration of the region\u2019s young, connected and increasingly global population, to fulfil their ambitions for personal independence.<\/h4>\n

In 2011, research suggested there was a demand for an additional of 3.5 million middle-income homes across the MENA region[1]<\/a>. \u00a0In Saudi Arabia, the figure was estimated to be around 400,000, with the rising population and urbanization pushing this figure ever higher.<\/p>\n

To address this demand, some 3.3 million new housing units will need to be built by 2025, according to the Ministry of Housing, with population projections reaching 37 million over the same period.<\/p>\n

This will entail a significant increase in the rate of supply compared with previous decades, where only half that number of homes came to market, hindered by longer-term constraints such as the rising cost of land and high costs of construction at the time.<\/p>\n

Defining middle-income housing<\/strong><\/p>\n

Middle-income housing is defined as housing that can be secured for no more than 30 percent of the gross household income of the middle 40-60 percent of households on the income distribution scale[2]<\/a>.<\/p>\n

Two-thirds of the Saudi Arabian population now earns between 6,000 and 20,000 Saudi Riyals per month (approximately US$ 1,600 to 5,000), yet just 30 percent of these own their own homes, compared to a worldwide average of 70 percent[3]<\/a>.<\/p>\n

The Saudi Arabian government recognized this unsatisfied demand early, and began addressing the situation in 2011. Today, its Vision 2030<\/em> strategy outlines how it will coordinate three aims \u2013 an ambitious nation, a thriving economy, and a vibrant society \u2013 to energize growth in the housing market.<\/p>\n

\"\"\u201cWe recognize each family\u2019s aspiration to own a home and the important role home ownership plays in strengthening family security. \u00a0Even though 47 percent of Saudi families already own their homes, we aim to increase this rate by five percentage points by 2020 . . .\u00a0\u00a0\u00a0 We will meet this target by introducing a number of laws and regulations; encouraging the private sector to build houses; and providing funding, mortgage solutions and ownership schemes that meet the needs of our citizens.\u201d<\/em><\/p>\n

Building affordable homes<\/strong><\/p>\n

Providing affordable homes for Saudis, however, is not a task the government can be expected to meet alone.\u00a0 Saudi Arabia\u2019s construction sector must become more active in reshaping itself and tackling these challenges. \u00a0There are also opportunities to increase the awareness of energy-saving materials; develop a greater focus on after-sales services; and continue to work towards a healthy balance between property size and quality.<\/p>\n

However, even if these issues are addressed, the key problem of supply remains: the average Saudi Arabian family finds it difficult to afford to buy its desired home.<\/p>\n

In the short-term, there is some relief on the horizon. \u00a0The Government Authority for Statistics\u2019 Real Estate Price Index[4]<\/strong><\/a><\/em> shows a decrease in domestic real estate prices during the first quarter of 2017 of around 2.3%, over Q4\/2016, and a decrease of 9.9% year-over year for the first quarter \u2013 but price alone is not the answer.<\/p>\n

Government Initiatives to increase accessibility<\/strong><\/p>\n

An emphasis on residential housing has been a keystone of government initiatives for over five years, with a number of regulatory changes aimed at improving the accessibility of real estate.<\/p>\n

These include restructuring and recapitalizing the Real Estate Development Fund (REDF) to target low income households, and introducing new mortgage regulations to help increase home ownership rates.<\/p>\n

While these are creating more momentum, the policies are only slowly filtering through. \u00a0The decision in December 2014, to set the loan-to-value ratio at 70 percent also had an unintended impact on middle-income households unable to find the 30 percent down payment.\u00a0 The aim was to reduce the risk of a property-driven credit bubble, like those seen in some Western markets, but it meant that retail real estate loans grew by only 8 percent in 2015, against 34 percent in 2014.<\/p>\n

Increasing housing supply<\/strong><\/p>\n

The Saudi Government recognizes that, irrespective of measures to increase demand, market growth is still being held back by an ongoing shortage in supply.<\/p>\n

It has therefore introduced several reforms designed to encourage developers \u2013 local and foreign \u2013 to build 1.5 million homes in the country by 2025.<\/p>\n

Real Estate Investment Trusts (REIT) have been introduced to stimulate the market, offering tax benefits to foreign investors that could, according to reports, help \u201cchannel additional sources of funding into the development of private-sector schemes across the Kingdom\u201d[5]<\/a>.<\/p>\n

In 2016, the mortgage regulations were loosened, and the requirement for a minimum 30 percent down-payments was halved to 15 percent, meaning that homebuyers could now secure loans for up to 85 percent of a property\u2019s value[6]<\/a>.<\/p>\n

The remit of the Real Estate Development Fund (REDF) has also been widened, so it is now the largest financier for the real estate sector, with a portfolio of approximately 190 billion Saudi Riyals[7]<\/sup><\/a>.<\/sup><\/p>\n

Impact of \u2018White Land\u2019 Tax<\/strong><\/p>\n

The introduction of the White Land Tax in March 2017, is a further positive development expected to help reduce the shortfall in supply of middle-income housing.<\/p>\n

\u2018White Land\u2019<\/em> is open land not designated for development and, according to research by consultants Ernst & Young (EY), it is \u201cseen as a major contributor to a growing housing shortage\u201d<\/em>[8]<\/a>.<\/p>\n

With up to 50 percent of the land inside Saudi Arabia\u2019s major cities remaining vacant, and much of it owned by wealthy individuals or companies[9]<\/a>, the White Land Tax is a way of encouraging active investment and housing development, while discouraging land hoarding, with the government promising to impose fees on undeveloped plots in urban areas.<\/p>\n

Under the tax, landowners will pay 2.5 percent of the value of their non-income generating undeveloped land each year, as an incentive for them to develop the land themselves, or release the land for development[10]<\/a>.<\/p>\n

The introduction of the White Land Tax will also generate additional revenue for the exchequer and increase \u201cthe overall real estate transactions by value and numbers\u201d[11]<\/a>.\u00a0 As much as 40 per cent of the capital, Riyadh, has been identified as liable for the tax, which economists have estimated could raise up to US$ 15 billion a year, reported a recent Financial Times<\/em> article[12]<\/a>.<\/p>\n

A changing country<\/strong><\/p>\n

Abdul Latif Jameel has long recognized the challenges facing Saudi Arabia\u2019s real estate sector, together with the opportunity they bring, and is committed to playing a significant role as the country shapes itself for the future.<\/p>\n

In 2013, it set up a dedicated real estate arm, Abdul Latif Jameel Land<\/a>, to help drive innovation and expansion in the market. Its first residential project \u2013 the J\u2502ONE development in Jeddah (www.joneresidence.com<\/a>) \u2013 is an inspiring model for the future of affordable housing across the country.<\/p>\n

Located in the vibrant Al Salamah area in the north west of the city, J\u2502ONE<\/p>\n

\"\"<\/p>\n

features 242 new apartments, ranging from one to four-bedrooms and floor areas between 80m2<\/sup> and 220m2<\/sup>.\u00a0 Its five stories of living space give residents easy access to Jeddah\u2019s business district, while also providing amenities including a fitness center, swimming pool, retail facilities and play areas for children.<\/p>\n

Fady Jameel, President of Abdul Latif Jameel International, says:<\/em> \u201cWith <\/em>J\u2502ONE, and all our future residential projects, our aim is to build on our 70 years of real estate expertise to develop a new community that suits the evolving needs of the Saudi market, for both lower and middle-income sectors.\u00a0 From the location, to the use of material and the correct use of space, this project will stand out in the city.\u201d<\/em><\/p><\/blockquote>\n

In recognition of Saudi Arabia\u2019s Vision 2030 aims of increasing renewable energy consumption, the apartments will be powered by solar panels. \u00a0In addition, Abdul Latif Jameel\u2019s own finance provider can help purchasers arrange mortgage finance for their property \u2013 helping to ease one of the key stumbling blocks for those seeking to buy middle-income properties.<\/p>\n

\"\"\u201cWe\u2019re enormously proud of <\/em>J\u2502ONE and we\u2019re immensely grateful to the municipality, whose help and support have been vital in making the project a reality.\u00a0 We want customers to know that if they do buy a property from Abdul Latif Jameel Land, they are buying not just a quality place to live: they are buying into an investment that will remain for the next 20 or 30 years . . .\u201d
\n<\/em> Mr. Jameel concludes.<\/p>\n

In developing J\u2502ONE, Abdul Latif Jameel Land is already attracting interest from young Saudis looking to move onto the housing ladder.<\/p>\n

It has a pipeline of further residential developments already in planning, with the aim of bringing at least one new residential community to the market every year from 2018, to 2023.<\/p>\n

With its relentless focus on investing in Saudi Arabia\u2019s future communities, Abdul Latif Jameel Land is showing that by tapping into the resources, knowledge and talent available across the country, by listening to the demands of the population, and by working closely with government at all levels, Saudi Arabia\u2019s middle-income housing market could be on the threshold of a brighter future.<\/p>\n