A total of 157,962 houses are required to be built annually between 2000 and 2003, to maintain a healthy balance between demand and supply of such units, according to the Economic Department of the National Commercial Bank (NCB). In this report, the NCB analyses the current situation and the outlook through to 2003 for the Kingdom's growing housing market. the total number of occupied houses in the Kingdom are estimated to have grown by 29.4 per cent to 3.61 million units in 1999, from the 1992 census figure of 2.79 million units.

This suggests an average yearly demand for 117,143 new housing units, involving erection of new buildings, replacement, and renovation of old ones. In the same period, the Kingdom's total resident population is estimated to have grown from the 1992 census figure of 16.95 million to an estimated 21.93 million in 1999, implying an average of 6.0752 individuals per single family housing unit.

The distribution of occupied housing units by type of structure in 1992 included traditional Saudi houses made of clay of 909,005 representing 32.6 per cent of the total, apartments 847,233 (30.4%), villas 454,365 (16.3%), flat-in-villas 241,317 (8.7%), tents-houses 91,818 (3.3%), shacks and huts 52,421 (1.9%), and all other housing units 192,254 (6.9%). The concentration of traditional Saudi houses and huts, which are generally located in rural areas, is on a decline as the government is continuously providing cost-free long-term loans through the Real Estate Development Fund (REDF).

Projected Demand

The supply and demand is generally considered in balance if total stock of housing units exceeds 15 per cent of total occupied units at any point of time. Based on this, the aggregate stock of housing units in the Kingdom is estimated to have reached 4.15 million at the end of 1999 compared with 3.21 million in 1992. The total population of Saudi Arabia is projected to rise from 21.927 million in 1999 to 25.265 million in 2003, representing a net-increase of 3.338 million including last year's one-time Iqama regularisation of 1.12 million foreigners overstaying in the Kingdom.

In the same period, the population of Saudi nationals is projected to rise from 15.249 million in 1999 to 17.229 million in 2003, representing an increase of 1.98 million inhabitants. Assuming there will be no change in the average number of individuals residing in a housing unit, incremental demand for occupied houses is projected to reach 549,447 units for the period from 2000 through 2003, at an average yearly demand of 137,362 housing units. In order to maintain a balance between supply and demand, an additional or 15 per cent (20,600 units) of the total yearly requirement will have to be constructed. Thus, the total yearly demand for housing stocks would reach 157,962 units between 2000 and 2003, of which, Saudi nationals would require 93,700 units each year, and expatriates of around 64,262 units.

Value of Residential Construction

In value terms, average yearly expenditures on the construction of housing units are measured by the size of Gross Fixed Capital Formation (GFCF) in residential construction of the whole economy. Using GFCF, it is estimated that total residential building construction expenditures rose at a yearly compounded rate of 10 per cent, from SR6.95 billion in 1990 to SR15.33 billion in 1998 or at an average of SR13.1 billion per year. Given the moderate medium term outlook for oil and economic growth, the near-term housing market outlook suggests a stable demand where gross fixed capital formation of residential building is projected to grow at a yearly average rate of around 3.2 per year between 2000 and 2003. Assuming the historical average GFCF to GDP ratio of 3.0 per cent, total residential building construction expenditures projected to rise from SR16 billion in 1999 to SR16.9 billion by the year 2003 (Table 1).

Supply of Housing Units

Besides private individuals, three public funded entities, directly or indirectly, are the main source of supply of housing units in the Kingdom; the Real Estate Development Fund (REDF), Ministry of Public Works and Housing, and the Saudi Industrial Development Fund (SIDF). The SIDF provides loans for industrial projects, which include housing facilities for workers related to the project. In addition, some government entities, defence establishments and private companies also provide housing for their employees.

The REDF provides interest-free long-term credits to construct private and commercial residential units. However, this cheap financing source limits the entry of local commercial banks into the private market for housing mortgage loans. Since its inception in 1975, the Fund has provided loans for the building of 536,954 private housing units worth SR117.41 billion up to January 1999. This gives an average funding per private housing unit of SR218,650. Preliminary estimates suggest that the Fund financed around 6,000 housing units last year (1419-20H), thus bringing the total cumulative number to 542,954 housing units by the end of 1999. In addition, the REDF has so far provided investment loans to contribute to the construction of 29,390 housing units till end of January last year, but no further loans were believed to have been granted during the whole of 1999. Thus, the combined supply from the REDF totalled 572,344 housing units in the last 25 years accounting for nearly 13.8 per cent of the total stocks of housing units in Saudi Arabia in 1999.

The Ministry of Public Works and Housing (MPWH) has so far constructed 25,702 low-cost housing units at a total cost of SR18.7 billion, or an average cost of SR727,570 per housing unit. The share of the MPWH in the total stock of housing units in the Kingdom is estimated to have reached 0.62 per cent by the end of 1999. Further extension of housing schemes by the ministry have been terminated as all completed projects were handed to the REDF for onward distribution to eligible citizens.

Besides these agencies, private individuals and corporations mobilise their savings and equities to construct housing units for self-occupation or leasing. According to the NCB estimate, this source of supply has so far provided the remaining 85.6 per cent (3.55 million) of the total stocks of housing units in the Kingdom by the end of 1999. Local commercial banks also provide financing for such construction projects, particularly to the commercial residential units. Saudi banks' credit to building and construction sector stood at SR19.37 billion by the end of 1999, marginally down from SR19.40 billion in the previous year.

New Permits/Expected Spending

The near-term outlook for construction activities in the Kingdom is demonstrated by the magnitude of building permits issued by the Ministry of Municipal and Rural Affairs. On average, it takes around 12 months to start a civil work after obtaining a building permit and thereafter around two to three years for a construction project to be completed. In order to assess the extent of construction activities created by the building permits this year and thereafter, it is therefore necessary to examine the building permits issued since the beginning of 1998.

According to the NCB estimate, a total of 26,700 building permits were issued in the 12 months to May 1998, compared with 25,279 in the same period a year earlier.

The corresponding estimated floor area for construction was 24.3 million sq m, up 4.3 per cent on the same period in the previous year. Assuming an average construction cost of SR500 per sq m, these permits were expected to create nearly SR12.2 billion worth of construction expenditures between 2000 and 2001, of which, nearly 85 per cent of the total is projected to take place in the construction of private residential buildings.

In the 12 months to April 1999, the ministry is estimated to have issued 27,000 building permits with a total floor area of 25 million sq m.

If implemented, these permits will likely generate construction expenditures worth SR12.5 billion between 2001 and 2003. Table 2 exhibits the recent trend in building permits and the corresponding total floor area and the area of related boundary walls.

Contracts Awards

The large number of private sector construction contracts awarded in 1998 and 1999 and in January this year are expected to generate ample construction activities in the residential and commercial sub-sectors. According to the sample data compiled by the NCB's Economic Research Department, a total of SR2,523 million worth of contracts related to commercial and residential buildings construction were awarded during 1999, an increase of 88.4 per cent from the previous year.

Among those awarded in 1999, a contract in excess of SR250 million was awarded to the Saudi Construction Company to build a large residential and commercial centre in Makkah. These accounted-for contracts represent only a fraction of the total construction market size for residential buildings in Saudi Arabia as private individuals and corporations, which account for 85 per cent of the total market demand, prefer to carry most of the construction activity by themselves.

Conclusion

Because of the contracts already in the pipeline and the large number of building permits issued by the Ministry of Municipal and Rural Affairs, this year is expected to be a good one for the residential construction sector.

The Real Estate Development Fund, which financed 6,739 housing units worth SR1,565 million in the 12 months to January 1999, satisfies only a small portion of the total demand for residential units in Saudi Arabia.

The current trend in the construction of residential building is expected to continue in 2001, but the outlook for 2002 is somewhat less assuring due to an expected decline in GDP as a result of a projected decline in oil prices.

The residential construction activities, however, are expected to pick up again in 2003 due to a recovery in the economy and oil prices.