Saudi housing need to widen to 265,000 units yearly by 2020

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A long-awaited mortgage law approved by Saudi Arabia in 2012 will have a limited impact on the housing market in the short term as the law mainly addresses demand not supply, the National Commercial Bank (NCB) said, noting that the market growth hinges on housing spending by the public and private sectors in the next 10 years.

The anticipated housing stock of 7.1 million units is expected to house a total projected population of 37 million during that year, the report further said.

“Consequently, total housing stock in the Saudi housing market is expected to expand by 2.2 million units during the next 8 years, with annual demand rising from 186,000 units in 2011 to 265,000 units by 2020.”

The report said “although the long awaited mortgage law was passed last year, it will not have a direct and immediate impact on the housing market in the short-term. Additionally, the recently legislated enforceability and mortgage financing laws will provide all participants with much needed regulatory controls,” NCB said.

“While the initial details about the law seem to address demand, it does not address supply shortages. Ultimately, until precedence has been set, the enforcement and applicability of the law will be unknown.”

NCB said it did not expect the mortgage market to “remarkably” grow during the next period even though the real estate financing laws have been passed.

“Government and private institutional spending in the housing sector will have a major role in shaping the housing market over the next decade,” it said.

It said a government decision to ease restrictions on obtaining loans from its development funds and the proliferation of the mortgage market will allow for more investment in the housing sector. Moreover, competition will allow consumers to benefit from competitive mortgage financing.

The report showed demand for housing, especially affordable units, continues to grow at a rapid pace in the Kingdom.

“The supply of housing units has not been able to keep up with demand causing an imbalance. On a full occupancy basis, the stock of housing units in the Kingdom increased by 1.2 million units between 2000 and 2010, bringing the total stock of occupied housing units to 4.6 million in 2010,” it said.

“This reflects the construction of 121,000 new units a year during that period. The major breakdown in the supply and demand imbalance is due to affordability limitations.”

NCB forecast the average Saudi household size to decrease to 5.28 persons per occupied housing unit by 2020.

The younger age demographic represents the largest portion of the population, causing gradual changes in cultural and traditional norms.

This article was first published in the Saudi Gazette.