Affordable housing a priority for the real estate sector in Saudi Arabia

Interview with Mohammed S. Alkhalil, President of FAD Investment & Development

Tell us about the latest developments in the real estate sector.

Definitely the taxation on the lands is a hard issue now. We are expecting this legislation to take some time but if they implement it well, it will help the sector. This is not the only thing that will help housing especially for low income people.

There are a lot of issues that need to be addressed. We definitely have the building materials and the type of building and construction methods in mind; they need to be more creative and the time taken needs to be shorter. The government is working towards this trend. There is also the mortgage law in place now with a slight modification of a 30% down payment.

You have something called the mortgage law but only parts of it are implemented and at the same time they are not really mortgages they are more like loans.

The mortgage market misses the secondary market. The government has announced that there is a big company to buy from the mortgage companies so it will be a secondary market going publicly traded. That is another issue.

There are also the on-plan payments and sales which is a good system that is already implemented. It is part of the financing methods and it is very effective. We are also seeing that in terms of justice they are forcing the justice implementation. This will also help with the legislations and making sure that everybody is getting their money.

The banks are hesitant to lend to people because there is no loan default law.

In addition, the Municipalities are enforcing shorter times for issuing approvals for plans. All of this is going on. We are asking the government to issue a High Commission of Real Estate to be responsible for all real estate issues.

We are asking the government to issue a High Commission of Real Estate to be responsible for all real estate issues

The government has announced that the starting point will be the Developers’ Centre. I am very optimistic about the real estate sector. It will take time. These things are new in the market so it will take time for people to understand them. There is a lot of effort being made by all agencies and Ministries related to the real estate sector to make it easy to work in this sector and to make investment in the sector very attractive. That is the focal point.

You have to make it very attractive so people will build and invest in real estate. It is just supply and demand. We work hard on the supply issue and also you have to drive the demand from the people, especially for mid to low income people. The government is working on that by giving long terms loans.

However, the waiting list for the loans from REDF is 19 years.

Now they are being very creative in terms of the loans. If you have more income then you can speed up your loan jointly with the banks. That is very creative and a good system to use. This will help about 20 to 30% of the people who have good income. We are on the right track

The main issue is really the 30% down payment requirement from SAMA which I think they will now work on putting into categories, so that it depends on your income. That is a good idea. This will move the existing housing stock already in the market. There is a desperate need for housing for the 400,000 to 800,000 category. It will help a lot. There is not enough supply whatsoever, we have supply for 1 million to 2 million.

There is a desperate need for housing for the 400,000 to 800,000 category. It will help a lot. There is not enough supply whatsoever, we have supply for 1 million to 2 million.

But nobody really wants to get in because what if the government the next day says that they will build half a million and pay for it themselves? What about the prices and the valuations? The recent report in Al Jazeera said that there was a drop in prices and the value of transactions.  Do you see something happening in the market like that?

The biggest problem that the Ministry of Housing talks about is getting the right statistics and numbers. We don’t want to speculate about numbers and talk about numbers if we don’t have accurate numbers.

 It is the starting stage to begin with the correct information. Even the Ministries have conflict in terms of their conclusions. It is important to have the correct information and that is the basic thing to start with.

How do you now structure your strategy vis-a-vis these developments in affordable housing, mortgages and liquidity?

In my opinion, affordable housing is very niche; it is very needed in our market. The 400,000 to 800,000 range is a sure thing in this sector. The new funds going on and the loans to citizens will definitely help this sector.

We have heard that people are not rushing into this segment because the government might compete against them.

No, the government has announced that they will not build anymore. They will let the private sector build and they will categorise the developers.

They are not going to change that?

No the government is responsible for people who don’t have anything. The government should build the houses for those people but not for those who can afford 400,000 to 800,000.

You are now launching projects and investing?

We are working on these affordable houses.

Can you give us the scale of it?

We are just collecting information now as it is a new policy and strategy in the Ministry of Housing and in the government so we need some time. We are also working on different methods for building housing. It is really very important in terms of reducing the time and the costs.

What is your current activity?

Our company is mainly now in the industrial sector building factories. We have steel factories, we have food processing factories and we also have events management. In terms of real estate we are just building small factories and renting to the people. It is much easier for now until the housing matter is cleared up, although we do believe that the affordable housing is the right thing to invest in.