Saudi Arabia Housing Market: Start Your Engines…

Saudi Arabia’s impending “mortgage law”, which has been in the planning stages for nearly a decade, was further delayed earlier this month when the Shoura Council, Saudi Arabia’s principal advisory body appointed by King Abdullah, announced that it would not vote on the measure until late September following the holy month of Ramadan and then the Eid al-Fitr  holiday. 

Per a Deutche Bank research note from April, total outstanding home finance provided by the private sector in Saudi Arabia aggregates to less than 1% of GDP, compared with well over 50% in most developed countries, and approximately 6% in Kuwait and 7% in the UAE.   Furthermore, the Bank estimates that Saudi Arabia will need 1.2 million additional housing units by 2015, and that based on market assumptions, when the new  mortgage law is ultimately enacted it will contribute to incremental demand of approximately 55,000 additional units per year.

Against the backdrop of a rapidly rising population that is set to exceed 26 million within the next three years, analysts forecast that long-term residential housing demand in Saudi Arabia will remain strong going forward, as almost 40 percent of the population is under the age of 14, and personal disposable income is projected to grow at a compound annual growth rate of 6.5 percent (reaching approximately SR659b, or $176b, by 2013).  And since it’s estimated that upwards of 30% of all consumer spending in rich economies is home-related, estimates published by BMI, a consultancy, earlier this year forecasting average annual private consumption growth of 7.92% between 2011 and 2014 that will outperform the average GDP growth over the same period (see graph, below) could be understated. 

Either way, it seems daft to continue to write-off Saudi Arabia’s overall economic well-being as wholly-dependent on exported commodities.  Moreover, if the Kingdom ever chose to address its chronic unemployment and income inequality issues, consumer figures would truly accelerate.