Pressures on the availability of affordable housing in Saudi Arabia have emerged due to demographic factors and bottlenecks in the real estate market, the IMF said in a report. Growing population, smaller average size of households, and continued urbanization have sharply increased demand for housing in recent years. As a result, the need for additional housing-primarily for low and middle-income households is estimated in the Ninth Development Plan at 1.25 million units during 2010-14. At the same time, supply of affordable housing units is constrained by scarcity of buildable land and limited access to finance for developers, reducing their ability to take on large projects and shifting their focus to the high-end market. Given the uncertain legal environment, banks have so far played a limited role in mortgage financing. The public-owned Real Estate Development Fund (REDF) has stepped in to fill the gap by providing interest free loans. However, the REDF, which currently accounts for 80 percent of outstanding housing credit, has been unable to keep up with demand, resulting in a waiting period of about 18 years. Excess demand for housing and the shortage of available land have also contributed to rising real estate prices, further reducing the affordability of housing, the IMF noted. In response, the government has recently announced several measures to address both supply and financing constraints. First, the Ministry of Housing (MOH) has replaced the General Housing Authority in order to centralize housing efforts under one umbrella. The REDF, which is now under the MOH, is being restructured and recapitalized with the intention to better target low income households, leverage its lending program through a guarantee scheme with the banking system, provide funding to real estate developers, and outsource the management of its current portfolio to banks in order to improve the recovery rate-the current portfolio of REDF amounts to SR80 billion, half of which is classified as delinquent. Second, the central government has allocated SR250 billion to the MOH for the construction of 500,000 new housing units over the next 5-10 years. Third, the long awaited mortgage law is expected to be approved in 2011. A key component of the mortgage law package is the enforcement law, which is anticipated to increase the ability of banks to realize underlying collateral in case of default. Additional measures can be taken to expedite the supply of housing and to monitor the expansion of real estate finance. To address the affordability of housing, mitigate the rise in land prices, and increase the supply of land for real estate development, the government should implement measures to unlock the static supply of land. Following the final approval of the mortgage law, long-term funding solutions for mortgage lending institutions should be developed in the medium term, the IMF pointed out. __
