JEDDAH: The new round of economic and social package launched by King Abdullah, Custodian of the Two Holy Mosques is aimed, among others, to raise home ownership among citizens to 80 percent by 2024 by boosting supply of affordable housing and expanding financing options for citizens, Banque Saudi Fransi said in its Saudi economics note Sunday. However, "attaining this could prove problematic," the report said, as two-thirds of the Saudi population are below the age of 30, including 47 percent under the age of 20. The number of young people moving out of their parents' homes and into independent dwellings as they reach marriage age in the coming decade is likely to surge. The size of Saudi families has, meanwhile, fallen since the 1980s to an average 5.65 per household in 2008 from 7.4 in 1987, creating a large pool of young-people on the hunt for mid-market detached, affordable homes. "Considering the housing supply-demand gap and the impending boom in youth demand for homes, we are bullish on the housing sector and confident the mortgage law will widen the scope of home ownership in the long term. Still, reforms to address the market's structural deficiencies will need to complement the law. For one, developers must focus on building supply of affordable housing since prevailing salaries are largely not high enough to support a mortgage finance boom. Quality and energy efficiency must also be prioritized," Dr. John Sfakianakis, chief economist, BSF, said. Land prices also pose a challenge. Plots of residential land have risen sharply in price over the past decade and some estimates say land accounts for more than half of total building costs. The state's move to grant some developers the right to sell units off-plan should encourage construction of large-scale projects and such reforms must continue. Barring a holistic approach to housing sector reform, many young Saudis could be compelled to rent instead of buy due to comparatively low rental yields, keeping a strain on already high rents and reducing ownership rates. In Saudi Arabia, as with many countries in the Middle East, citizens have traditionally bought homes using personal capital and family savings. Banks offer home loans on a limited basis and some public and private-sector companies have helped employees buy homes through in-house financing schemes. These options are usually reserved for wealthier Saudis, leaving a gap of financing among the mid-to low-income population. Banks have recently increased mortgage financing to large firms, which guarantee loan repayments, minimizing default risk while offering much-needed financing to citizens. Saudis of lesser financial means are able to apply for home loans through publicly held Real Estate Development Fund (REDF), established in the 1970s with a goal of distributing non-interest-bearing home loans to citizens for construction and purchase of homes. REDF dominates the Saudi housing market, accounting for 81 percent of total home financing. As upward pressure on asking prices for apartments and villas gains rather than loses momentum, there is an urgent need for new units where they are required most, to provide middle- and lower-income citizens with single-family homes, the repot noted. The government is working on several fronts to try to alleviate supply constraints, last month dedicating SR55 billion ($14.7 billion) to programs assisting lower income citizens obtain funding for home buys. Over the weekend, the king made a considerable call to allocate SR250 billion to the General Housing Authority to finance immediate construction of 500,000 new units. There are also signs the state is striving to expedite the passage of a long-delayed mortgage law which, by delineating the rights of borrowers and lenders, could over time encourage banks to expand the risk profile of their clientele, potentially heralding a wave of growth in consumer finance. Yet the short-term housing scenario is complex and puts young Saudis at a disadvantage. The law's passage would have the immediate effect of spurring enthusiasm in Saudi property. But prevailing house asking prices and salaries place ownership out of reach for numerous public and private sector employees, especially those in the early years of their careers, the report further aid. "We estimate private and public developers will need to build about 275,000 units a year through 2015, for a total of 1.65 million homes over six years, to cater to demands of a population that has doubled in size since 1988 and grows more than 2 percent annually," Sfakianakis said. The Saudi housing market is unique in the Gulf for an undersupply of units, the report noted. BSF's half-yearly surveys of Saudi real estate showed the cost of apartments and villas climbed quickly in 2010. Despite price constraints, the Saudi home ownership ratio is high at 60 percent, according to the 2004 general census, and 2007 demographic data showed the rate remained consistent. The ownership rate had fallen to 55 percent from 65 percent between 2000 and 2004, over which period the ratio of average home rental costs to total income climbed to 30 percent from 26 percent, according to Ministry of Economy and Planning data. Some independent estimates put home ownership rates as low as 30 percent.
