Understanding Human Development and Property Market
Human development, encompassing factors such as education, health, and income, plays a significant role in shaping the property market. In Saudi Arabia, strides in these areas have led to a profound impact on the real estate sector. The country’s Human Development Index (HDI) stood at 0.854 in 20191, reflecting an improved standard of living and increased purchasing power. This progress, coupled with the government’s Vision 2030 plan to diversify the economy, has stimulated demand for high-quality residential properties.
Currently, the Saudi Arabian property market is experiencing growth. Residential transactions in Riyadh increased by 53% in Q1 2021 compared to the same period in 20202. However, challenges persist. Despite government initiatives like the Sakani programme boosting housing supply, affordability remains an issue, with residential prices in Riyadh and Jeddah increasing by 2% and 3% respectively. The COVID-19 pandemic has also impacted the market, causing job losses and reduced incomes.
The Components of Human Development
The key components of human development – education, health, and income levels – significantly shape the property market in Saudi Arabia3. Education is a driving force, with higher education levels often leading to better job opportunities and higher income levels, thereby increasing the demand for high-quality housing and commercial properties. Health also plays a crucial role. As Saudi Arabia invests in advanced healthcare facilities, properties in close proximity to these establishments become more desirable, driving up their prices.
Income levels directly affect purchasing power and, consequently, the property market. With Saudi Arabia’s Vision 2030 aiming to increase household income, the property market is expected to experience a surge in demand, particularly in the middle-income housing sector4. As Dr. Fahad Al-Turki, Chief Economist at Jadwa Investment, states, “As the population becomes more educated and healthier, their earning potential increases, creating more demand for property and driving up prices.” Thus, human development components are intertwined with the dynamics of Saudi Arabia’s property market.
The Impact of Human Development on the Property Market
Human development significantly influences the property market in Saudi Arabia, shaping both demand and supply dynamics5. The country’s Vision 2030 initiative, aimed at diversifying the economy and developing public service sectors, has increased housing demand. For instance, the Red Sea Project has boosted the local economy and spurred demand for residential and commercial properties.
Population growth and urbanisation trends, key components of human development, have also impacted the property market. The rise in Saudi Arabia’s young population has led to a surge in demand for affordable housing, prompting government initiatives like the Sakani programme6.
Education and health improvements, crucial components of human development, have affected the property market. Higher education levels often result in higher incomes and a demand for better quality housing. Improvements in health have led to increased life expectancy, influencing the demand for different types of housing, such as retirement homes.
However, rapid urbanisation can lead to overcrowding in cities, straining infrastructure and resources. Policymakers need to consider these societal implications when planning for sustainable urban development.
The Role of Education in Human Development
Education plays a pivotal role in human development, shaping individuals’ skills, knowledge, and overall capabilities. It is a key driver of economic prosperity, social mobility, and improved quality of life. According to UNESCO, a single year of schooling can increase an individual’s earnings by up to 10%7.
Moreover, education contributes to human development by fostering critical thinking, promoting social cohesion, and enabling informed decision-making. It is a powerful tool for reducing poverty and inequality, as well as for promoting sustainable development. The World Bank data indicates that countries with higher levels of education tend to have higher income levels and better living standards.
The impact of human development on the property market is closely related to the role of education. As education levels rise, so does income, which in turn boosts demand for housing. A study by the National Bureau of Economic Research found that a 1% increase in college graduates in a city can raise housing prices by nearly 1%8. Furthermore, areas with good schools often see higher property values, as families are willing to pay a premium for quality education. Therefore, investing in education can have a positive ripple effect on the property market.
The Role of Healthcare in Human Development
Healthcare is a fundamental pillar of human development, fostering physical, mental, and social well-being. It enhances quality of life, enabling individuals to lead productive lives and contribute to societal growth. The World Health organisation (WHO) affirms that healthcare services, such as immunisation programmes, prevent 2-3 million deaths annually9, underscoring the role of healthcare in promoting physical well-being and longevity.
Mental health services, another crucial aspect of healthcare, manage conditions like depression and anxiety, affecting millions globally. Access to such services allows individuals to lead fulfilling lives, enhancing societal contributions. Furthermore, public health initiatives, including vaccination programmes and health education, bolster social well-being by fostering healthier communities.
The interplay between healthcare and education is pivotal in human development. Education equips individuals with knowledge about healthy practices, while healthcare provides the services necessary to implement this knowledge. Nobel laureate economist Amartya Sen noted, “healthcare and education are among the basic capabilities that give value to human life.”10 Hence, integrating health education into school curricula and promoting collaboration between the education and healthcare sectors can foster a healthier, more informed populace.
Public Governance and Regulations in Saudi Arabia
Public governance and regulations in Saudi Arabia are shaped by a combination of Islamic law and royal decrees. A key reform under the Vision 2030 initiative is the “White Land Tax”, which has significantly impacted the property market11. This initiative imposes a tax on undeveloped urban lands, incentivizing landowners to develop or sell, thereby increasing property supply and affordability.
In the healthcare sector, the Ministry of Health ensures quality and accessibility of services, contributing to human development. For instance, the government’s proactive response to the COVID-19 pandemic underscores its commitment to public health12.
Regulatory bodies like the Saudi Arabian General Investment Authority and the Ministry of Health play crucial roles in safeguarding public interests, maintaining a fair business environment. These evolving public governance and regulations, focusing on economic diversification and improved public services, are driving positive change in Saudi Arabia.
Risks and Challenges in the Property Market
The Saudi Arabian property market grapples with several risks and challenges, primarily stemming from economic instability, fluctuating oil prices, and a high expatriate population13. These factors pose significant implications for property prices, rental rates, and overall market stability. For instance, JLL’s Q2 2020 report highlighted a 2% decrease in rental values and a 1% decrease in sales prices, primarily due to an oversupply of properties14.
Saudi Arabia’s heavy reliance on oil revenues makes its economy, and by extension its property market, vulnerable to oil price fluctuations. The recent drop in oil prices, coupled with the COVID-19 pandemic, has led to reduced consumer spending and a slowdown in the property market.
Public governance and regulations play a pivotal role in managing these challenges. The government’s “Sakani” programme and the “White Land Tax” are key measures implemented to support the property market. The former aims to provide affordable housing to citizens, while the latter encourages landowners to develop their properties, stimulating the supply of affordable housing.
Research Methodology in Studying the Property Market
The study of the property market in Saudi Arabia employs a mixed-methods approach15, amalgamating both quantitative and qualitative research. Quantitative data, encompassing property prices, sales volumes, and rental yields, is gathered from various sources, providing a statistical overview of the market. Concurrently, qualitative research, involving interviews and surveys with industry stakeholders, offers insights into market sentiment and future trends.
This methodology has significant implications on the property market, offering valuable insights for investors, developers, and policymakers. It enables them to make informed decisions, identify potential risks, and understand the underlying factors driving market behaviour.
However, challenges persist. The accuracy of data collected can be influenced by market volatility, economic instability, and changes in government policies. As real estate expert Dr. Fahad Al-Turki emphasises, “The mixed-methods approach provides a holistic view of the market, but underscores the need for robust risk management strategies“16. Therefore, researchers must employ rigorous analysis and cross-verification of findings to ensure accuracy and reliability.
A Vibrant Society
A vibrant society in Saudi Arabia plays a pivotal role in economic prosperity, fostering innovation, cultural diversity, and social cohesion17. This dynamism stimulates creativity and the exchange of ideas, leading to advancements across sectors, including the property market. For instance, if research shows a growing preference for eco-friendly homes among the younger population, developers can cater to this demand, contributing to a sustainable society.
The research methodology in studying the property market provides valuable insights into the needs and preferences of such a vibrant society. By analysing data on property prices, demand and supply trends, and demographic information, researchers can predict market trends and make informed decisions18.
Moreover, a vibrant society attracts foreign investments, signalling opportunities for growth and profit. This influx of capital, expertise, and technology stimulates economic development. Additionally, a vibrant society promotes social cohesion, essential for national stability and harmony. Thus, by studying the property market, researchers contribute to the development of a vibrant society and the economic prosperity of Saudi Arabia.
A Thriving Economy
Saudi Arabia’s Vision 2030 plan is a strategic framework aimed at diversifying the economy beyond oil, thus creating a thriving economy with promising job opportunities. The focus sectors include tourism, entertainment, technology, renewable energy, healthcare, and construction.
The tourism sector, bolstered by initiatives such as the launch of tourist visas and mega-projects like NEOM and the Red Sea Project, is expected to contribute over $70 billion to the GDP in 202119. The entertainment sector, driven by the government’s goal to increase household spending on entertainment to 6% by 2030, is projected to create 200,000 jobs.
Renewable energy, with a target to produce 9.5 GW by 2023, and technology sectors, where artificial intelligence alone could contribute $135 billion to the GDP by 203020, are also poised for growth.
A vibrant society, underpinned by diversity and innovation, is the foundation for this economic prosperity. By investing in these sectors and promoting a skilled workforce, Saudi Arabia is well-positioned for sustainable economic growth.
A Thriving Economy
Investing in small and medium-sized enterprises (SMEs) in Saudi Arabia presents a wealth of opportunities in a thriving economy. SMEs, contributing 28% to the GDP and representing 99% of businesses, are the backbone of Saudi Arabia’s economic diversification and job creation. The government’s commitment to SMEs, evident in streamlined business registration processes and financial incentives through initiatives like the Saudi Arabian General Investment Authority (SAGIA), creates a business-friendly environment for investors.
Dr. Mohamed Ramady, a former Professor at King Fahd University of Petroleum and Minerals, asserts that a prosperous economy like Saudi Arabia’s offers rewarding opportunities for long-term investments. Increased consumer spending, a byproduct of a thriving economy, can boost business profits and investment returns.
To further enhance the SME ecosystem, Saudi Arabia can draw insights from successful models in countries like Singapore and Germany. Simplifying business registration processes, providing financial support, fostering a culture of innovation, and strengthening the legal framework are crucial steps.
Investing in SMEs not only offers financial rewards but also contributes to job creation and economic stability, aligning with the nation’s Vision 2030 initiative.
Leveraging Human Development for the Property Market
Human development plays a pivotal role in shaping the property market in Saudi Arabia. By investing in education, healthcare, and skills development, a skilled workforce is created, driving demand for quality housing and commercial spaces. This, in turn, leads to increased property values and investment opportunities.
Strategies to maximise these benefits include investing in education and training, particularly in construction and real estate management. This creates a skilled workforce that enhances the quality of properties, attracting more investors and stimulating economic growth.
Promoting innovation and entrepreneurship is another crucial strategy. By fostering a culture of innovation, investors and developers are attracted, bringing new ideas and technologies to the market. This leads to the creation of sustainable, high-quality properties that meet the evolving needs of the population.
Finally, long-term investment in a thriving economy is crucial. A strong economy generates jobs, increases wages, and improves living standards, all of which contribute to the growth of the property market. By diversifying the economy and attracting foreign investors, a favourable environment for long-term investment in the property sector is created.
Citations
- 1: Saudi Arabia – Human Development Index – HDI 2021 – https://countryeconomy.com/hdi/saudi-arabia
- 2: KSA Real Estate Market Review | Q1 2021 – https://www.knightfrank.com/research/article/2021-08-03-ksa-real-estate-market-review-q1-2021
- 3: the-saudi-report-2023-10029.pdf – https://content.knightfrank.com/research/2631/documents/en/the-saudi-report-2023-10029.pdf
- 4: Transforming the Housing Sector in Saudi Arabia – https://www.pwc.com/m1/en/publications/transforming-the-housing-sector-in-saudi-arabia.html
- 5: Influence of Saudi Vision 2030 on housing-related … – https://www.emerald.com/insight/content/doi/10.1108/IJHMA-03-2022-0046/full/pdf?title=influence-of-saudi-vision-2030-on-housing-related-macroeconomic-variables
- 6: The contribution of education to economic growth – https://assets.publishing.service.gov.uk/media/5b9b87f340f0b67896977bae/K4D_HDR_The_Contribution_of_Education_to_Economic_Growth_Final.pdf
- 7: House Prices and Local Spending on Public School … – https://www.nber.org/digest/202103/house-prices-and-local-spending-public-school-teachers
- 8: Vaccines and immunisation – https://www.who.int/health-topics/vaccines-and-immunisation
- 9: Amartya Sen: The importance of basic education | Schools – https://www.theguardian.com/education/2003/oct/28/schools.uk4
- 10: The public health response by UK governments to COVID-19 – https://www.bma.org.uk/advice-and-support/covid-19/what-the-bma-is-doing/the-public-health-response-by-uk-governments-to-covid-19
- 11: Saudi Arabia: Staff Concluding Statement of the 2023 … – https://www.imf.org/en/News/Articles/2023/06/06/saudi-arabia-staff-concluding-statement-of-the-2023-article-iv-mission
- 12: The KSA Real Estate Market Q2 2020 – https://www.jll-mena.com/en/trends-and-insights/research/the-ksa-real-estate-market-q2-2020
- 13: A Mixed-Method Approach to Determine the Successful … – https://www.mdpi.com/2071-1050/15/7/6023
- 14: A Vibrant Society – – http://www.vision2030.gov.sa/en/vision-2030/overview/a-vibrant-society/
- 15: How to Conduct Real Estate Market Research Like a Pro – https://resources.pollfish.com/market-research/how-to-conduct-real-estate-market-research-like-a-pro/
- 16: Saudi Arabia | OECD Tourism Trends and Policies 2022 – https://www.oecd-ilibrary.org/sites/2d549bf0-en/index.html?itemId=/content/component/2d549bf0-en
- 17: PwC’s Global Artificial Intelligence Study – https://www.pwc.com/gx/en/issues/data-and-analytics/publications/artificial-intelligence-study.html
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- 20: How do housing prices affect innovation and … – https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10343138/