JEDDAH: Greater integration across Saudi Arabia through civil projects and infrastructure investment will promote economic stability, job growth and ultimately benefit the real estate markets in the Kingdom. Progress in the real estate sector parallels the long-term growth potential for Saudi Arabia's economy. New demand drivers, like the improvement of transportation systems and infrastructure projects, will create investment opportunities and increase the connectivity and attractiveness of the market. Against this backdrop, Jones Lang LaSalle, a leading real estate investment and advisory firm, released Sunday its "Top Trends for 2011" shaping the Kingdom of Saudi Arabia's real estate in the coming year and beyond. Soraka Al Khatib, co-head of Jeddah Office, said: "Recent initiatives outlined in the stimulus package, illustrate the strong leadership role of the government, which will act as a catalyst for real estate. Importantly, these initiatives offer an excellent opportunity to achieve critical social goals, like job growth and community building." The report said the Kingdom's relative stability, combined with the strong long term fundamentals, solidifies its role as a strategic commercial location in the region." The key predictions are: 1. Stimulus package will help to build communities For 2011, Saudi Arabia announced the largest budget ever at SAR 580 billion, which was more recently increased to over SR1 trillion. The implementation of the budget will provide significant support to the real estate sector, on both the supply and demand sides. King Abdullah, the Custodian of the Two Holy Mosques, has issued a Royal Decree aiming to improve living conditions for all Saudi citizens. For example, the capital for the Real Estate Development Fund was increased to SR40 billion and the limit of the loans provided has risen from SR300,000 to 500,000. Under the supervision of the General Commission for Housing, a project totaling SR250 billon was announced to build 500,000 residential units in all regions of the Kingdom. These initiatives will stimulate construction activity and increase supply. While there may be short term inflationary pressures, in the long term these investments will create jobs, increase the standard of living and can improve the social fabric through community building. John Harris, co-head of Riyadh Office, said: "Citizens in the Kingdom of Saudi Arabia have a better opportunity to own their homes than in the past, due to the recent guidance and directives of King to build 500,000 housing units in various regions of the Kingdom. The existing shortage of affordable housing will decrease significantly, while the large scale initiatives provide an excellent opportunity for holistic community building." 2. Government leadership is a catalyst for real estate The stimulus package and leadership initiatives provided by the government, will have a direct and indirect impact across real estate sectors. Directly stimulus will be provided to the residential sector through large scale residential plans from initiatives like the General Housing Authority (500,000 units), National Guard (17,000 units), and GOSI (691 units). Developing new residential communities creates opportunities for retail, which will be further supported by increased consumer spending enabled through recent salary adjustments. More generally, the stimulus will boost economic activity, create jobs, and boost demand for office space. The government leadership also directly mandates the addition of new civic facilities with plans for 610 new schools and 12 new hospitals and health related facilities. Khatib said "recent initiatives create a massive potential for growth in the real estate sector, but there will be some implementation and delivery challenges. Achieving social objectives, like community building, through the strategic development of residential communities is an ideal opportunity to create public-private partnerships to overcome these challenges." 3. Infrastructure is critical for realizing real estate objectives Investment in a world-class transport infrastructure will create investment opportunities and underpin demand for real estate in KSA. Major long-term investments in infrastructure and transport for airports (6 projects, SR25 billion), ports (2 projects, SR12 billion), and railway (23 projects, SR96 billion) improve the competitive advantage, attract investment, and enable connectivity within the kingdom, but also connectivity to the region with Saudi Arabia as the core. 4. Property management will differentiate the winners from the losers Long-term capital values will be directly determined by the quality of property and facility management. With many sectors experiencing a significant increase in supply, the new high value assets will require a higher quality property management to maximize revenues, manage costs, and minimize depreciation. Injections of new supply will tip some markets in favor of tenants, which will require leasing strategies and frameworks that ensure occupancy. This trend will be led by large multinational tenants that prefer to lease space managed by professional property management firms. Within facility management, a component of property management, opportunities will emerge to reposition non-performing office and retail assets and, more generally, industry stakeholders will focus on the importance to lifecycle services. The delivery of world-class assets will shift the focus from development to operation and to the protection of the long term value of investment. 5. Light industrial and logistics sectors are on the rise Driven by state owned enterprises and buoyed by strong oil prices, the growth of light industrial and logistics will promote economic growth and increase employment opportunities. In 2011, the focus will shift to more specialist logistics developments and for locations offering multimodal logistics networks integrate air, sea and rail. The focus on quality will be supported through investor demand, which is strongest for securely leased, institutional grade product. 6. Growth of middle income, mid-scale residential developments The residential sector will move more to mid-scale planned communities built by professional developers. Since the market will require approximately 900 new homes delivered each day over the next five years, the efficiency realized through centrally planned mid- to large-scale communities is ideal. In terms of market segmentation, high-end demand is largely met and the extensive government initiatives are targeting the affordable housing segment. Thus, the market niche for private developers is primarily in mid-scale developments targeting the middle income housing bracket (SR650,000- 800,000). Due to the unique family dynamics and larger space requirements of citizens, the target purchase price is approximately SR200-250 per square foot, which is best achieved through the economies of scale realized in mid- to large-scale developments. While the residential market is supported through the stimulus package and infrastructure investment, delivering homes to citizens and achieving social objectives will require innovative acquisition structures. Although off-plan sales have started, the mortgage law remains a critical factor in expanding homeownership among citizens.
