It's contagious after all? Mecca's surroundings experiencing 'unprecedented' real estate boom in Saudi
The Kingdom’s Western Region is experiencing an unprecedented real estate boom, with billions of riyals earmarked for mega projects. Among the most important are the SR15 billion, mixed-use Prince Sultan Cultural Center north of Jeddah and Bawabat Makkah, a visionary city planned for 86 square kilometers just west of the holy city of Makkah.
Both projects will be highlighted on the second day of the Jeddah Real Estate Summit workshops, held alongside the 5th Jeddah Urban Development and Real Estate Investment Event.
Cityscape Jeddah 2014 is taking place on May 4-6 under the patronage of Prince Misha’al Bin Majed Bin Abdulaziz, Governor of Jeddah.
Ahmed Al-Sanousi, CEO of the Jeddah-based Prince Sultan Cultural Center (PSCC), will share remaining developer and investor requirements for the PSCC project.
“PSCC and neighboring projects are transforming the area into an extension of the Kingdom’s commercial capital,” said Sanousi. “Summit attendees and exhibition visitors will learn of promising investment opportunities available for PSCC, including housing, education, tourism and hospitality, and commercial activities.”
PSCC will be developed in phases over the next five years on an area of two million square meters on Madinah Road, adjacent to King Abdullah Sports City. The Center will have a state-of-the-art 920-bed medical complex, as well as an open-air theater (Prince Sultan Cultural Oasis), a conference and exhibition center, residences, and a wide variety of residential support facilities.
Equally high on the agenda for day two is the Bawabat Makkah project, to be detailed by Eng. Essam Kalthoum, Managing Director of Bawabat Makkah Company, who said that the government is allocating new funding and there are eight subprojects for Bawabat Makkah soon available for bid.
Commenting on building a sustainable city of one-million people, Eng. Kalthoum said: “Bawabat Makkah will have a significant impact on Makkah’s real estate market, thus it has been planned, taking into consideration market demands combined with our commitment to social responsibility. It is phased to be developed according to availability of infrastructure and following a master plan dependent on the variance of land-use.”
Eng. Kalthoum went on to comment on stakeholder management techniques for politically-driven projects, saying: “Bawabat Makkah enjoys the support of the regional government as well as the Ministry of Rural and Municipal Affairs. Both agencies are backing up the Makkah Municipality, which is the main executor of most of the developments in Makkah. The most evident support can be seen in the establishment of Al-Balad Al-Ameen as the development arm of the Municipality of Makkah, with one of its main responsibilities being the establishment of proper partnership platforms with the private sector.”
Another discussion topic will be real estate developments in Saudi Arabia facing the old issue of privately-owned land being left undeveloped in order for it to accrue value. Stating that this issue does not apply to Bawabat Makkah, Eng. Kalthoum explained: “Bawabat Makkah is based on government-owned land which was transferred by the government in order to be developed at the western suburb of Makkah. The land is under the ownership of Bawabat Makkah Company and away from land speculations. The key advantages of the land are: its location, terrain, proximity and connectivity to Makkah City.
In conclusion, Eng. Kalthoum said: "Bawabat Makkah’s strategy aims at formulating development plans that identify the land use and product mix as well as several iconic projects such as a university, an administrative quarter and a national park. In doing so, Bawabat Makkah will ensure that land available for urban developers is available at reasonable prices so that they are encouraged to focus on the physical development of housing, commercial facilities and services, rather than focus only on land development.”
In addition to these iconic projects, other topics to be discussed by the Kingdom’s real estate leadership at the Summit include project funding, off-plan sales, ways to support the mortgage law, and the Kingdom’s construction labor shortage.
According to a new report issued by NCB Capital, the outlook for the real estate sector remains strong, with the Ministry of Housing making good progress on several initiatives and developers foreseeing benefits from this. This positive sentiment has made real estate the highest performing sector in the market, up 30 percent, outperforming the TASI by 20 percent.
Another contributing factor is the rise in real estate financing institutions now approved by SAMA - 14 now, including 8 banks and 6 financing firms, signaling the announcement of full approval of the mortgage law sometime soon. According to Colliers, the full implementation of the law may increase real estate financing by 60 percent in the next five years. Accordingly, financing between 2014-2019E will increase from the initial expected SR131billion to SR210 billion.
The consumer base should also increase to include home buyers which fall in the monthly income bracket of SR6,000-SR9,000, according to Colliers. However, NCB Capital believes this assumption may be a stretch given that SAMA places a cap of 80 percent on the loan-to-value ratio. With relatively high priced residential units in the major cities, home buyers in such income brackets may not be able to secure the 20 percent down payment required.
Experts believe that the government and the private real estate sector must work together to find bottom-up solutions to property development red tape and general bureaucracy.
“Defining the cost of project delays due to slow action on licensing and issuing permits is one of the challenges facing the real estate sector,” said Dr. Abdullah Bin Mahfouz, Chairman, National Exhibition Company, organizers of Cityscape Jeddah.
“The Real Estate Summit workshops, held alongside Cityscape Jeddah, will answer importance questions such as: Does the private sector ask too much of government? Is there still too much red tape slowing down property development? What are the available tools for the Jeddah property community to achieve things more efficiently?”
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