The real estate market in Saudi Arabia is on the verge of expansion because of a projected drop in land prices and a new mortgage law, experts told Al-Shorfa.
New programmes and the new mortgage system -- approved by the cabinet in July and expected to take force in the next few weeks -- will contribute to decreased land prices, realtors said.
Land prices are expected to drop by 20%, especially in the central, eastern and western regions, according to realtors. Residential land prices in cities will vary based on several indicators, including services, employment opportunities, and the level of development.
Abdullah al-Shaal, owner of a real estate development company in Jeddah, said many Saudis who do not own a home have been waiting for a favourable opportunity to achieve "the dream of a lifetime".
"The main reasons for the decline in the rate of home ownership are rapid population growth and the influx of foreign workers into the country," he said. "The drop in land prices will relieve the housing problem, which has become an obsession for many people."
Residents in low and middle income brackets are generating most of the demand as they are unable to obtain home loans from the bank and spend a large portion of their income on rent, according to Khalid al-Shihri, who manages a real estate company.
"The migration from the countryside to the cities intensified the pressure and drove land and housing prices higher. The percentage of Saudis living in cities increased from about 48% in 1974 to 85% today," he said.
It is vital to develop programmes that encourage people to stay in their areas to stem internal migration and correct imbalances in the real estate market, he said.
"The [new] mortgage system and the trend among developers towards building low-cost homes will contribute significantly to solving the housing problem," al-Shihri said.
He said reducing the gap between supply and demand for housing requires that the Ministry of Housing implement various housing programmes that stimulate home purchases.
In March 2011, King Abdullah bin Abdulaziz established the Ministry of Housing to address housing shortages in the kingdom. He raised the value of mortgages provided by the Real Estate Development Fund from 300,000 riyals ($80,000) to 500,000 riyals ($133,000) and pledged to spend more than 250 billion riyals ($66.7 billion dollars) to build 500,000 new residential units.
A week after the king's announcement, Banque Saudi Fransi said the kingdom needs 275,000 new housing units a year through 2015 to meet growing demand, estimated at 1.65 million homes.
Essam al-Borai, an economics specialist with the Bin Mahfouz Group, said the kingdom is poised for a major construction boom that will meet this demand.
"The long-awaited mortgage law will bring about a huge leap in this massive market. The kingdom controls 33% of the real estate market in the Gulf region in 2012," he said.
Al-Borai said those working in the real estate sector should be made aware of the new incentives as the field is reporting an increase in investment.
He said safeguards related to real estate investment transactions must also be upheld.
"It is important to have an arbitration mechanism in place for resolving contentious issues that may arise in order to protect capital investments from being frozen," al-Borai said.
Residents welcomed the fact some real estate developers are seeking to build low-cost homes to meet the needs of millions of Saudis.
Ahmed al-Ari, an elementary school teacher in Jeddah, said he has dreamed of owning a private home for 20 years but has not been able to realise it because of the high price of real estate.
"The approval of the new mortgage law and the new trends in the real estate market offer us some hope of owning a private home and breaking free from the burden of rent, which has consumed an enormous portion of our money over the years," he said.