Majed Al Hogail, Minister of Housing: Interview

Interview: Majed Al Hogail

To what extent can better use of building technologies improve the Kingdom’s housing projects?

MAJED AL HOGAIL: Advanced building technologies and innovation can have a substantial impact on the sector by reducing the cost of home ownership, and the quality, sustainability and speed of construction. Globally, construction technologies have evolved from traditional on-site construction to off-site production, and line-based construction to new automated technologies.

We are currently working to modernise the sector through the adoption of two broad categories of technologies: modern methods of construction (MMCs) and future methods of construction (FMCs). MMCs are technologies that have been proven in the Kingdom or elsewhere, and have been adopted to render sizeable productivity and cost enhancements. FMCs are technologies that are currently in the proof-of-concept stage but have transformational potential: examples include 3D printing and robotics. In 2017 MMC technologies enabled the leveraging of 30,000 housing units. We are collaborating with local and international private enterprises to deploy commercial-scale FMCs. A newly designed building rating system branded as Estidama is being rolled out to fully realise these benefits.

How can government lending incentivise the growth of the house financing market?

AL HOGAIL: Through the Real Estate Development Fund, the government is bolstering the risk appetite of the mortgage industry with three types of umbrella offerings. These include down payment guarantee, profit subsidies and guaranteeing higher risk loans. These offerings, along with different sub-products, will give momentum to the mortgage industry.

Our two main key performance indicators target increasing home ownership from 48% to 60%, and reducing loan waiting time from 15 years to five years, in the context of a dramatically increasing population. The most important change we have made regarding this is moving from a model of direct lending to one of indirect lending. This process has enabled the subsidisation of more loans, and the empowerment of new generations and underserved borrowers, with an impact on broader GDP. We find that each riyal injected into the sector directly contributes 2.7 riyals to GDP.

How is the Ministry of Housing planning to engage the private sector to meet Vision 2030 targets?

AL HOGAIL: We are radically transforming the housing industry in the present moment, aiming to achieve a balance between self-builds and real estate development, while making it more attractive for the private sector to target demand for lower-income housing. The demand is estimated to account for 75% of the housing market, with a purchasing power range of between SR200,000 ($53,300) and SR700,000 ($187,000).

The ministry is working to make the housing business case more attractive, organise the market and enhance the value proposition. First, we are providing the private sector with ministry land for free or at marginal cost, leading to a 20-30% reduction in overall development costs. On privately owned lands, we are allowing for a higher floor-area ratio, thus increasing density and reducing average land costs. Second, we have introduced regulations to allow off-plan sales and to provide attractive upfront financing for 20% of a project’s value, meaning such projects will basically require no external source of financing. Third, we are assisting private developers in leveraging building technology, which today is the only way to build large housing projects at the right quality and price. In the period spanning April to October 2017 we awarded 34 projects to 24 developers, allocating more than 74,000 units across 18 cities. Our product prices start from SR218,000 ($58,100) per unit, with the average sizes being 150-180 sq metres. Currently 70% of these are being built on ministry land, and 30% on private land, although we are planning to achieve a 50:50 balance in the future.