RIYADH — NCB Capital, the GCC's leading wealth manager and the Saudi Arabia's largest asset manager, said in a report update that the strong macro-economic drivers of the Kingdom keep the real estate sector's long-term outlook. “Data on construction contracts indicate a strong pipeline that continues to focus on real estate,” say the report authors, Abdulelah Babgi and Mohamed Tomalieh, equity research analysts at NCB Capital. “However, concerns for the sector include the impact of new governmental programs such as land and loan, project delays due to Saudization measures and cuts in the number of pilgrims.” The authors added: “We remain overweight on Dar Al Arkan with a PT of SR11.9. Our price target has been revised down marginally due to the disappointing 2Q13 results which we believe is due to lower land sales. However, the stock trades at an attractive 0.7x P/B, given a promising project pipeline and a large undeveloped land bank. We believe this supports our overweight call. We remain neutral on Taiba and Al Akaria with price targets of SR38.0 and SR33.2, respectively.” They say that the sector outperforms the index by 26 percent year-to-date and that Taiba is the best performer, up 67 percent. “The sector is up 44 percent YTD, outperforming the market by 26 percent,” the authors say. “The rally has been led by Jabal Omar which is up 62 percent due to investor optimism on its projects in the vicinity of the Holy Mosque in Makkah. From the stocks under our coverage, Taiba has increased the most at 67 percent YTD. We believe this is due to the expectations of significant compensations from possible compulsory purchase orders of properties in Madinah by the government.” The report said data suggests strong demand prospects for the sector. “Construction contracts show that the value of contracts awarded in 2Q13 reached SR54 billion (SR103 billion in 1H13), with around 39 percent awarded to the real estate sector – indicating the strong demand is present. Moreover, the Ministry of Housing announced that the current shortage of housing units in the Kingdom is around 700,000 which we believe will further support the demand in this sector,” the authors said. The added that government policy continues to drive the sector outlook. NCB Capital noted that the Saudi government remains an important stakeholder in the real estate sector of the country. Newly introduced policies such as land and loan and Ejaar in addition to loans from SREDF aim to narrow the gap between demand and supply, regulate the rental market and encourage home ownership. — SG
