KSA housing demand grows despite market imbalance

(MENAFN- Arab News) The demand for housing, especially affordable, continues to grow at a rapid pace in Saudi Arabia. The increase in migration patterns to the Kingdom's three main regions of Makkah, Riyadh and the Eastern Province has exerted pressure on property developers and financial institutions to accommodate such shifts. The younger age demographic represents the largest portion of the population, causing gradual changes in cultural and traditional norms, according to a report by the National Commercial Bank. The supply of housing units have not been able to keep up with demand causing an imbalance. On a full occupancy basis, the stock of housing units in the Kingdom increased by 1.2 million units between 2000-2010, bringing the total stock of occupied housing units to 4.6 million in 2010. This reflects the construction of 121,000 new units per annum during that same period. The major breakdown in the supply and demand imbalance is due to affordability limitations, the NCB said in its Semi-Annual Sector Review. The average Saudi household size is expected to decrease to 5.28 persons per occupied housing unit by 2020. The anticipated housing stock of 7.1 million units is expected to house a total projected population of 37 million by 2020. Consequently, total housing stock in the Saudi housing market is expected to expand by 2.2 million units during the next 8 years, with annual demand rising from 186,000 units in 2011 to 265,000 units by 2020. Although the long awaited mortgage law passed last year, it will not have a direct and immediate impact on the housing market in the short-term. Additionally, the recently legislated enforceability and mortgage financing laws will provide all participants with much needed regulatory controls. While the initial details about the law seems to address demand, it does not address supply shortages. Ultimately, until precedence has been set, the enforcement and applicability of the law will be unknown. "We do not expect the mortgage market to remarkably grow during the forecast period even though the real estate financing laws have been passed. Government and private institutional spending in the housing sector will have a major role in shaping the housing market over the next decade," the report said. The government's easing of restrictions on obtaining loans from the Real Estate Development Fund (REDF) and the proliferation of the mortgage market will allow for more investment in the housing sector. Moreover, competition will allow consumers to benefit from competitive mortgage financing, the NCB said in its report.