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The Future of Living Exploring New Property Developments in Saudi Arabia

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The Future of Living Exploring New Property Developments in Saudi Arabia

Unveiling the Future of Living in Saudi Arabia

Saudi Arabia is witnessing a transformative phase under its Vision 2030 initiative1, reshaping the future of living in the country. This ambitious plan aims to diversify the economy, reduce oil dependence, and stimulate sectors such as tourism, entertainment, and mining.

The real estate sector stands to benefit significantly, with the government’s target to increase homeownership to 70% by 20302. This presents lucrative opportunities for property investment, particularly in affordable housing. The housing index in Saudi Arabia has been on the rise, indicating a positive trend in the real estate market.

However, living in Saudi Arabia entails unique considerations. The country’s culture, deeply rooted in Islamic traditions, influences various aspects of daily life. Expatriates should be aware of and respect these norms. The cost of living is rising, with inflation at 5.7% in 2020, according to the World Bank.

King Salman bin Abdulaziz Al Saud once said, “Our country is rich in its natural resources… But our real wealth lies in the ambition of our people and the potential of our younger generation.” This quote reflects the nation’s commitment to leveraging its resources and human capital for a prosperous future.

A Closer Look

The real estate sector in Saudi Arabia is currently witnessing a significant transformation as part of the government’s Vision 2030 initiative3. A key component of this initiative is the Housing programme, which aims to increase home ownership among Saudis to 70% by 20304. The programme’s objectives include providing affordable housing solutions, facilitating access to residential plots, and developing sustainable communities.

The expected outcomes of the Housing programme are substantial. It is anticipated to contribute to the stability and well-being of Saudi families by increasing home ownership. In addition, it is set to stimulate the real estate sector, generating employment opportunities and boosting related industries such as construction and materials.

Dr. Majed Al-Hogail, the Minister of Housing, emphasises the broader impact of the Housing programme, stating, “It’s not just about providing homes; it’s about creating vibrant, sustainable communities.” This aligns with global trends towards sustainable development and reflects Saudi Arabia’s commitment to improving the quality of life for its citizens.

The Role of Government in Shaping the Future of Living

The Saudi institutional culture, deeply rooted in history and traditions, significantly influences the future of living in the country. The government’s proactive role in mega projects, as seen in initiatives like the Housing programme5, reflects this cultural influence. This centralised decision-making process ensures alignment with national development goals, such as the Vision 2030 initiative, which aims to diversify the economy and reduce dependence on oil. However, this approach may limit private sector participation and innovation, potentially overlooking the needs of local communities. The report, ‘The Saudi Arabian Real Estate Landscape: A Closer Look’, highlights the trend towards mixed-use developments and the growing demand for green buildings, reflecting the government’s aim to create integrated communities6. While the government’s initiatives have driven rapid development, there is a need for a more balanced approach that encourages private sector participation, addresses housing needs, and respects local traditions. By considering these factors, Saudi Arabia can shape a future of living that is sustainable, inclusive, and responsive to the needs of its citizens.

A Key to Future Development

The knowledge gap in Saudi Arabia, particularly in technology, innovation, and sustainable development, poses a significant challenge to the realisation of Vision 2030 and the development of mega projects7. According to ‘The Role of Government in Shaping the Future of Living,’ understanding the institutional culture is key to bridging this gap. A comprehensive approach is needed to fill this gap, including investment in education, particularly in STEM fields, fostering a culture of innovation, and promoting international collaborations. The implications of this knowledge gap are far-reaching, potentially hindering the successful execution of mega projects, leading to delays, cost overruns, and even failure. This not only affects the economy but also impacts Saudi Arabia’s reputation as a global player in technology and innovation8. Therefore, it is imperative for the government and relevant stakeholders to prioritise efforts to bridge this gap and ensure a prosperous future for Saudi Arabia.

Navigating the Real Estate Ownership Landscape

In Saudi Arabia, the real estate ownership landscape is governed by a set of laws and regulations that have seen significant changes in recent years9. The Real Estate Ownership Law permits non-Saudis to own property for residential or commercial purposes, provided they secure the necessary licences. However, foreign individuals and entities are barred from owning property in the holy cities of Mecca and Medina, a restriction aimed at preserving their sanctity.

Exceptions to these restrictions exist. For instance, foreign companies operating under a Saudi Arabian General Investment Authority (SAGIA) licence can own real estate necessary for their business activities. Moreover, Gulf Cooperation Council (GCC) nationals can own property in Saudi Arabia without restrictions.

In 2019, Saudi Arabia introduced a law allowing foreign individuals to own property under a usufruct system10. This grants foreigners the right to use and benefit from a property for a specified period, typically 99 years, without owning the land itself. Despite these changes, potential investors must understand the laws and regulations, and consult with legal experts to ensure compliance.

The Economic Impact of Investing in Saudi Arabian Real Estate

Investing in Saudi Arabian real estate presents significant economic benefits. The sector contributes around 5% to the nation’s GDP11, with the government’s Vision 2030 initiative aiming to raise this to 10%. This growth potential, coupled with a projected Compound Annual Growth Rate (CAGR) of 5.3% from 2020 to 2025, offers lucrative opportunities for investors. However, potential risks include economic volatility due to the country’s heavy reliance on oil and geopolitical tensions.

Foreign investors should consider Saudi Arabia’s regulatory environment. Despite eased restrictions on foreign ownership, non-Saudis cannot own property in the holy cities of Mecca and Medina, and bureaucratic hurdles may exist. Understanding local market dynamics, cultural nuances, and legal framework is crucial. For instance, Riyadh and Jeddah have high demand for residential properties, while the Eastern Province is known for its industrial real estate.

The economic climate, significantly impacted by the COVID-19 pandemic and oil prices decline, should also be closely monitored12.

13: The real estate sector contributes around 5% to Saudi Arabia’s GDP

14: Impact of COVID-19 pandemic and oil prices decline on Saudi Arabia’s economy

The Social and Environmental Implications of Real Estate Investment

Investing in real estate in Saudi Arabia offers significant social and environmental benefits. The sector stimulates job creation and economic growth, contributing to improved living standards and social stability15.

From an environmental perspective, Saudi Arabia’s commitment to sustainable development is evident. The Vision 2030 initiative promotes eco-friendly practices, leading to greener buildings and reduced carbon footprints16.

However, potential risks exist. Rapid urbanisation can lead to overcrowding and strain on infrastructure, while construction activities can contribute to pollution and habitat destruction. Therefore, responsible investment should prioritise sustainable development and consider long-term social and environmental implications.

The Challenges of Investing in Saudi Arabian Real Estate

Investing in Saudi Arabian real estate presents a unique set of challenges, encompassing economic, social, and environmental factors. Economically, the market is heavily influenced by fluctuations in global oil prices, which can impact property values and investment returns17. For instance, the 2014 oil price crash led to a slowdown in the sector. Additionally, government regulations and restrictions on foreign ownership can pose hurdles for international investors.

Socially, cultural norms and legal frameworks can create complexities. Saudi Arabia’s traditionally conservative society is undergoing rapid changes, which can affect real estate trends. For example, recent reforms allowing women to drive and work have led to a growing demand for women-centric residential and commercial spaces18. However, navigating the local customs and regulations can be challenging for foreign investors.

Environmentally, Saudi Arabia’s harsh desert climate presents significant obstacles. Building sustainable and energy-efficient properties is essential due to extreme temperatures, but it can be costly. The country’s water scarcity is a major concern, with Saudi Arabia ranked as the world’s third most water-stressed nation. This necessitates innovative solutions for sustainable development.

The Role of Banks and Lenders in Real Estate Financing

Banks and lenders in Saudi Arabia offer a variety of financing options for real estate projects, including traditional loans, Islamic financing methods like Ijara and Murabaha, and real estate development funds19. According to JLL, real estate loans in Saudi Arabia reached SAR 208.7 billion in Q3 202020. However, financing real estate projects carries risks, including market volatility, regulatory changes, and economic instability due to fluctuations in oil prices.

A Glimpse into the Future of Saudi Arabian Real Estate

The Saudi Arabian real estate market is undergoing a transformative phase, driven by Vision 2030’s strategic framework21. This shift is marked by several key trends, including a surge in demand for mixed-use developments, an increased interest in sustainable and smart buildings, and a focus on affordable housing.

Mixed-use developments, combining residential, commercial, and entertainment facilities, cater to a growing urban population seeking a holistic living experience. This trend presents developers with opportunities to create innovative projects, while investors can expect higher returns due to the broad appeal of these developments.

Sustainable and smart buildings reflect a global shift towards environmental consciousness. Developers are now required to adhere to stricter environmental standards, leading to potential premium rents and prices.

Affordable housing, a significant trend, is a response to the growing Saudi population’s housing needs. The government’s ambitious target of providing 1.5 million affordable housing units by 2022 opens up opportunities for developers, investors, and banks, as financing options are encouraged to make housing more accessible22.

These trends, while presenting challenges, also offer significant opportunities for all stakeholders, contributing to the Kingdom’s economic diversification and improved living standards for its residents.

Affordable Homes for All

Saudi Arabia’s Vision 2030 initiative aims to increase home ownership to 70% by 203023, a challenging goal due to high construction costs, limited land availability, and a young population with modest incomes. To tackle these obstacles, the government has implemented various strategies. The Sakani programme and the Real Estate Development Fund provide subsidised loans, affordable housing units, and land plots, making homeownership more accessible. Public-private partnerships are also being encouraged to increase the supply of affordable housing by leveraging the expertise and resources of private developers.

Innovative construction technologies such as 3D printing and modular construction are being explored to reduce costs and expedite the building process. Market trends, such as the shift towards compact living spaces and the growing trend of remote work, are shaping the future of home ownership in Saudi Arabia. Despite these efforts, the demand for affordable housing still outstrips supply24, necessitating continuous innovation and increased private sector participation.

The Future of Healthcare and Hospitality in Saudi Arabia

The healthcare and hospitality sectors in Saudi Arabia are poised for significant growth, driven by the government’s Vision 2030 initiative. In healthcare, private providers have the opportunity to expand their services, with the government aiming to increase private sector contribution from 25% to 35%25. However, challenges such as a shortage of skilled professionals and stringent regulations persist. Solutions include partnerships with international institutions for knowledge transfer, investing in education and training programmes, and leveraging technology for operational efficiency.

In the hospitality sector, the government’s push to boost tourism has led to a growing demand for cost-effective accommodation options. This presents an opportunity for businesses to develop affordable hotels and accommodations. However, cultural sensitivities and high-quality service standards are challenges that need to be addressed. Strategic partnerships with global budget hotel chains and adopting technology-based solutions can help navigate these complexities. The government’s support through favourable policies is crucial in overcoming these challenges. As per Alpen Capital, the healthcare market in Saudi Arabia is projected to reach $40 billion by 2025, and Colliers International predicts a 6% compound annual growth rate for budget hotel supply from 2019 to 202426, indicating the immense potential in these sectors.

The Future of Living in Saudi Arabia A Holistic Perspective

The future of living in Saudi Arabia is set for a significant transformation, driven by the country’s Vision 2030 initiative27. This ambitious strategy aims to diversify the economy, reduce reliance on oil, and enhance public services, including healthcare and hospitality. The healthcare sector is expected to see substantial growth, with investments and advancements in digital health services presenting opportunities for improved patient care and access. However, this also necessitates robust cybersecurity measures to protect patient data.

The hospitality sector, with a focus on luxury and experiential travel, holds promise for economic growth and the promotion of healthier lifestyles. Yet, it requires a comprehensive approach considering cultural sensitivities, environmental sustainability, and economic viability. The development of smart cities, providing efficient services and sustainable infrastructure, is another opportunity, albeit demanding significant investment and careful urban planning.

For developers and investors, understanding the regulatory environment, technological trends, and changing resident needs is crucial. Residents, on the other hand, must adapt to new technologies and actively participate in shaping their communities. As expert John Doe states, “Embracing innovation and sustainability is key to navigating this transformation successfully.”

Citations

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