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Saudi Arabia Needs 1m New Homes

“An expected slowdown in credit growth in 2009 undoubtedly will feed through into property demand, putting pressure on prices in the short term,” the bank said.

The bank forecast a 15 per cent decline in house prices and rents in the kingdom’s capital Riyadh in 2009, with a slow recovery expected in 2010.

But a rapidly growing population means there are shortages in residential, commercial, retail and hospitality property in Riyadh, Jeddah, Makkah, Madina and the Eastern Province, the report said. This would eventually lead to prices rising again.

“Demand in Saudi Arabia is driven by robust population growth and shrinking households ... the biggest shortage, though, is in the residential sector,” the bank said. The country’s population is expected to reach 26.5 million by 2014, up from 23.7 million in 2007, it said, citing government estimates.

“Saudi residential prices are relatively affordable, with further room for appreciation. Given the tight market and the imminent introduction of the mortgage law, we believe prices are likely to move higher,” HSBC said.

“They may stagnate in the near future during the global slowdown. But long term, the fundamentals 
seem favourable.”

The kingdom’s first mortgage law is expected to be implemented this year. A draft law, which has been in the works for almost a decade, was approved last year by the advisory Shura Council.

Around 75 per cent of the Saudi population is local compared with 10 to 15 per cent in the UAE and Qatar, it said.

While other markets in the Gulf Arab region cater mainly to the high-end expatriate segment, the affordability in Saudi Arabia and restrictions on foreign ownership mean low to mid-income Saudi nationals will likely drive demand, it added. Urban migration will drive demand in residential and office sectors in Riyadh and Jeddah, while religious tourism will boost hospitality and retail sectors of Makkah and Madina, the bank added.