By: MDr. Tarek Elghamrawy, PE, PMP
30 August 2023
Lately, much of the buzz surrounding Saudi Arabia has revolved around Football as the Saudi Pro League has made international headlines for recruiting dozens of the world’s best players to it’s clubs. However, and beyond the headlines, there is a whole remarkable transformation taking place in the Kingdom—a transformation that is creating a wealth of investment opportunities, particularly in the real estate sector.
Having recently engaged in a series of consultations on both the private and public sectors, let me share with you my insights on the real estate development ecosystem in the Kingdom.
The key player is the Public Investment Fund (PIF). As the Kingdom’s sovereign wealth fund, it plays a vital role in fueling the accelerated growth in Saudi Arabia. Through strategic investments in sectors such as real estate, infrastructure, technology, and entertainment, the PIF attracts international businesses and investors, while also contributing to the development of key industries within the country. By injecting capital, expertise, and innovation into the economy, the PIF creates job opportunities, fosters entrepreneurship, and drives the overall diversification of the Saudi economy.
Aligned with PIF, government bodies including ministries and municipalities have already established dedicated departments to boost investment and foster growth in the real estate sector, with a clear vision of achieving financial sustainability for government entities by 2025.
Land parcels are generally offered to developers on a partnership scheme through the Ministry of Housing and municipalities “Amanat”, and most recent, through semi-governmental master developers such as ROSHN and NEOM “Powered by PIF”. Developers bid on a selling Built-Up-Area (BUA) price, and once granted, the Ministry determines the final selling price to end customers after adding the land price. The Ministry offers the project residential units on its platform to pre-qualified buyers. This new land offering scheme significantly releases the financial burden on developers compared to old regime at which developers used to acquire land first requiring huge amount of capital prior to project commencement.
The accelerated development of the real estate sector in Saudi Arabia is being facilitated by the adoption of off-plan sales. Unlike the traditional ready-to-move model, off-plan sales refer to the purchase of properties before their completion. This approach allows developers to secure pre-sales, enabling them to mobilize funding for construction and infrastructure development. By embracing off-plan sales, the Saudi government aims to accelerate real estate development, stimulate economic growth, and create a wide range of investment opportunities. Important to note that the regulation of off-plan sales in Saudi Arabia is robust, thanks to governmental bodies such as WAFI and REDF. This ensures transparency and protects the interests of buyers and investors.
Another key component of the real estate investment and development ecosystem is the availability of mortgage options, enabling end buyers to select their preferred units with a down payment of just 15%. The remaining amount can be conveniently paid over a 25-year period, resulting in affordable monthly installments that align with individuals’ monthly income levels. Notably, the government also offers initiatives like SAKANi to subsidize the down payment, further enhancing accessibility to homeownership.
These comprehensive measures have already resulted in tangible results on the ground. One countermeasure is the Kingdom’s vision of increasing homeownership among Saudi citizens to 70% by 2030. In fact, the initial target for this year was 60%, and I’m pleased to share that it has already been surpassed, reaching an impressive 63%.
It’s important to note that real estate development serves as one of the main economic drivers, encompassing not only residential properties but also commercial, administrative, educational, and medical developments. This holistic approach to development ensures a vibrant and sustainable ecosystem that supports the diverse needs of Saudi society.
As we witness the remarkable transformation of Saudi Arabia, it’s evident that the country offers an abundance of investment opportunities, particularly in the thriving real estate sector. Through strategic partnerships, robust regulations, and the visionary role of the Public Investment Fund (PIF), Saudi Arabia is paving the way for sustainable growth, attracting global investors, and increasing homeownership for its citizens. Join me in exploring the vast potential that Saudi Arabia holds—the land of opportunities awaits.
written By:
Dr. Tarek Elghamrawy, PE, PMP
Development, Investment & Portfolio Management Expert | PropTech Founder | US-GCC Experience | Academic Professor | Entrepreneur
