Majed Al Hogail, Minister of Housing: Interview

Interview: Majed Al Hogail

How is the ministry fostering public-private partnerships (PPPs) with local private developers?

MAJED AL HOGAIL: The ministry acknowledges the potential benefits from partnerships with real estate developers and is planning to rely on PPP programmes to promote housing investment. This partnership should provide the housing market with 1.5m housing units (villas, apartments or developed lands) over the next five years. The PPP programme will facilitate the whole value chain of real estate development, and the programme will be implemented in the ministry’s lands or the private sector’s lands over the coming five years. The programme is a strategic initiative for the ministry, and to ensure its success it is working to develop the legal framework for the real estate sector by establishing the Real Estate Authority. Furthermore, the government has established the Developers Services Centre (Etmam) in order to provide real estate developers with a one-stop shop to obtain all required permits and licences.

What role can foreign companies play in closing the current gap in the Kingdom’s housing market?

AL HOGAIL: From the demand side, the door could be open for international mortgage houses to penetrate the Saudi market through partnerships with the government and the private sector. The mortgage market is today worth SR116bn ($30.9bn) and the target is to reach SR250bn-300bn ($66.6bn-$80bn) in the coming five years. This cannot be achieved without the activation of a secondary mortgage market. They could play a role by buying bonds and sukuk (Islamic bonds). Moreover, they could play a major role in refinancing companies. There are also potential opportunities for mortgage guarantee companies and private sector insurance. Private sector players from the mortgage markets of advanced economies could use their experience and know-how to play an advisory role in setting up the secondary mortgage market here in Saudi Arabia. Furthermore, through the National Transformation Programme, the ministry will be providing SR20bn ($5.3bn) to financing applicants to enhance their purchasing power.

The initial market assessment revealed that there is a significant role for foreign companies in the housing market from the supply side as well. Thus, there is a strategic initiative to improve the investment environment in the housing sector to attract foreign companies. The ministry aims to have foreign companies contribute on the supply side by investing in the housing market and promoting knowledge transfer. The ministry is also coordinating with the Capital Market Authority on the introduction of real estate investment trusts. Initial estimates project that foreign companies could provide 30-40% of supplied units within the next five years. The ministry is therefore working with the relevant government agencies to help foreign investors obtain the required licences.

What impact are the Kingdom’s shifting demographics having on accommodation preferences?

AL HOGAIL: Based on the General Authority for Statistics (GaStat) census from 2010, the Kingdom’s estimated population in 2015 was 31m, with an average household size of 5.7 persons. The household size varies between Saudis (6.7) and non-Saudis (4.1). Saudis represent 70% of the population, while foreigners represent the remainder. The average growth in population is estimated at 2.12% for the period 2014-20.

The 25-to-40-year-old age group will be the most significant contributor to future demand, as many in this segment are moving out of their parents’ homes and creating families. This transition, combined with overall population growth, may require smaller-sized units such as apartments to be developed to keep pace with demand growth and improve affordability. According to GaStat, there are approximately 5.6m housing units currently in the Kingdom.