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8/3/2019 Saudi Real Estate and Construction Sector_Samir
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Saudi Arabia Real Estate and
Construction Industry:Trends and Challenges
Dr. Samir Pradhan
Senior ResearcherEconomics ProgramGulf Research Center
Dubai, UAEFebruary 2010
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Growth Resilience and Outstanding Opportunities
Business Environment
Largest economy in the Middle East and North Africa (MENA) regionholding 25% of the total Arab GDP.
Construction industry is the largest in the MENA region and the largestnon-oil economic industry in KSA, both in residential and industrialbuilding.
Government is attempting to promote growth in the private sector byprivatizing industries such as power and telecom.
The Saudi Arabian General Investment Authority (SAGIA) isundertaking a multi-billion (US) dollar development strategy centredaround the building of greenfield economic cities around the country.
The economic cities are designed to attract foreign and domesticinvestment into the downstream energy, transport, industry andknowledge-based sectors.
Saudi Arabia During the Downturn
KSA plans to spend a trillion dollars on infrastructure investment overthe next 15 years, with a projected budgeted oil prices of $50/barrel
Despite downturn, public infrastructure projects are largely secure andwill be an important stimulus tool for the Saudi government
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Macro Scan, 2009Geographical Area 1,960,582 million sq. km
Population Total 28 million (22.6 million Saudis, 5.6 millionforeign nationals)
Annual populationgrowth rate
1.9%
Literacy Rate 78.8% (male 84.7%, female 70.8%)
Infant mortality rate 12.01 deaths/1,000 live birthsLife expectancy Male 74 years, female 78 years
Work force 8.1million, about 53% foreign workers-nearly 2.3 million in construction sector
GDP (2008 est.) $527 billionGDP Annual growthrate
6.1%
Per capita GDP $21,062
Foreign Trade
Exports--$364 billion, Imports--$103 billion
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Population: High GrowthAnnual Population Growth
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Percent
Total Population 2.5 2.6 2.5 2.4 2.4 2.4 2.3
Saudis 2.6 2.7 2.5 2.5 2.4 2.4 2.3
Non-Saudis 2.4 2.5 2.5 2.2 2.2 2.1 2.1
2003 2004 2005 2006 2007 2008 2009
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Saudi Population Pyramid*:Demography is Destiny
Age range Total Percentage Value
From 0-4 2545949
8.33% Male 1298776
8% Female 1247173
From 5-9 2454994
8.05% Male 1254647
7.7% Female 1200347
From 10-14 2051481
6.68% Male 1040984
6.48% Female 1010497
From 15-19 1741832
5.62% Male 876047
5.55% Female 865785
From 20-24 1393349
4.26% Male 663493
4.68% Female 729856
Young population (from 0-4 range to 20-24) range accounts for
more than 65 percent of total Saudi populationNote: * national Source: CDSI, 2009
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Labor ForceYear Total Employment
(Thousandpersons)
Govt.Sector*
Private Sector Saudis Non-Saudis
Saudi %oftotal
Non-Saudi% oftotal
2002 6264.8 945.5 5319.3 2943.5 3321.3 47 53
2003 6610.5 978.1 5632.4 3124.6 3485.9 47 53
2004 7180.6 1012.4 6168.2 3298.2 3882.4 46 54
2005 7371.5 1026.1 6345.4 3367.2 4004.3 46 54
2006 7523 1022.3 6500.7 3431.6 4091.4 46 54
2007 7744.4 1124.8 6619.6 3600.8 4143.6 46 54
2008 8017.3 1177.1 6840.2 3756.7 4260.6 47 53
2009 8148 1215.1 6932.9 3838 4310 47 53
Note: *does not include military and defence employment data Source: CDSI,2009
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Growth Buoyancy2002 2003 2004 2005 2006 2007r 2008r 2009p
GDP Real (1999prices - SRbillion)
637.2 686.0 722.2 762.3 786.4 802.2 837.0 838.2
GDP Real (1999prices US $
billion)
169.9 182.9 192.6 203.3 209.7 213.9 223.2 223.5
Growth in Real-GDP (%)
0.1 7.7 5.3 5.6 3.2 2.0 4.3 0.15
Growth in PrivateSector (%)
3.8 4.4 5.7 5.7 5.9 5.2 5.0 2.64
Growth inGovernmentSector (%)
2.4 2.6 2.2 3.3 1.9 1.9 2.4 3.81
Growth in OilSector (%)
-8.5 18.6 6.6 6.6 -1.1 -4.1 4.3 -7.59
Source: Central Department of Statistics & Information, MEP/macroeconomic calculations; SAMA -45th Annual Report, & 4th QuarterlyStatistical Bulletin -2009; and Ministry of Finance - 2010 budget statement. Notes: r revised, p preliminary estimates
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Per Capita GDP: Increasing Affluence
Year GDP( Million $)
Population( Million )
GDP Per
Capita( million$)
1991 131161 15.95 8223.2
2001 183012
20.988723.2
2005 315337 23.11 13645.07
2006 356155 23.68 15040.3
2007 383871 24.24 15836.3
2008* 468800 24.81 18895.7
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Annual Government Revenues and Expenditures(Actual, million $)
Year Total Revenue Total Expenditure Deficit/Surpl
us
Ratio ofDeficit/
Surplusto GDP
Oil
Revenue
Other
Revenue
Total Current
Expenditure
Capital
ExpenditureTotal
1990 65679 18758 84437 100588 29392 129980 -45543 -18.4
1995 28194 10873 39067 39674 6711 46385 -7318 -5.1
2000 57180 11638 68817 57855 4897 62753 6065 3.2
2005 134544 15945 150489 75779 16614 92393 58096 18.4
2006 161192 18457 179649 85976 18910 104886 74763 21.0
2007 149916 21497 171413 92586 31746 124333 47081 12.3
2008 262232 31366 293598 103690 34995 138685 154913 33.0
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Sectoral contribution to GDP, 2008* (at current prices)
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Contribution of Some Economic Activities to GDP,2009
B d All i f Fi l Y 1430/1431H
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Budget Allocations for Fiscal Year 1430/1431H(2009) by Major Sectors
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Construction Sector Share in total Gross FixedCapital Formation
Note: * Includes residential, non-residential and other construction: Source: CDSI, 2009
Year GFCF Total
Million $
Construction
Million $
Share
(%)
Oil sector
Million $
Share
(%)
1985 20350 15163 75 2214 11
1995 24948 16754 67 3938 16
2005 52169 24965 48 5928 11
2006 62151 27855 45 11835 19
2007 77958 36967 47 13520 17
R t t t ti
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Rea estate an onstructionIndustry
Saudi Arabia has experienced an unprecedented constructionboom during the past two decades, as the country'sinfrastructure has undergone rapid expansion. The creation ofnew airports, highways and even new cities and ever increasingdemand for housing has attracted huge FDI into the economy.
In 2008, Energy and Real Estate sector accounted for 53 percentshare of total FDI inflows to the Kingdom with values of $ 12billion and $ 8 billion respectively.
The construction industry now accounts for 15% of SaudiArabia's labour force and 14% of the country's energyconsumption.
The boom in the Saudi construction industry mirrors the rapidgrowth of the country's domestic economy, fuelled by enormousoil revenues. The construction sector is one of the mostimportant contributors to Saudi Arabia's gross domestic product(GDP), accounting for about 9% of its total value.
The government is the principal source of constructionexpenditure in Saudi Arabia, accounting for approximately 67%
of the nation's construction investment.
Ki d C t ti t t i
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Kingdom Construction sector metrics
The Saudi Government plans to spend $400bn oninfrastructure projects in the next five years as thekingdom seeks to benefit from lower construction costsamid the global financial crunch
The construction sector will be driven by the launch of six
economic cities to be completed by 2020, construction ofgovernment buildings and housing, investment in utilities(electricity and water), and investment in energy upstreamand downstream projects. These six new industrializedcities will diversify Saudi Arabias economy and areexpected to contribute $150bn to GDP.
Indicators/Year 2007 2008 2009
Construction industry value, USD bn 9 9 11
Construction industry, real growth, (%y-o-y)
4.8 2.5 3.1
Construction industry, per cent of GDP 4.7 3.5 4.3
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The Economic Cities
Jazan Economic City
(In the Planning Stage)
Investment US$ 27 BillionFocus Heavy Industries, Lifestyle,
Agro Industries, Peopledevelopment
Linkwww.jazanecity.com
Tabuk Economic City
New Development Proposed
Ras al-Zour Economic City
New Development Proposed
Knowledge Economic City
(Under Development)
Investment US$ 7 Billion
Focus Knowledge Based Indutries,
Tourism and ServicesLink www.madinahkec.com
Prince AbdulAziz bin Mousaed EconomicCity
(Under Development)
Investment US$ 8 Billion
Focus Logistics, agribusiness,minerals and constructionmaterial
Link www.pabmec.com
King Abdullah Economic City
(Under Development)
Investment US$ 27 Billion
Focus Ports, Logistics, LightIndustry and Services
Linkwww.kingabdullahcity.com
Ki Abd ll h E i Cit
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King Abdullah Economic City
Location: 100km north of Jeddah Size: 168 km Cost: 100 billion SAR (US$ 26.6 Billion) Sponsor: EMAAR Jobs: 500,000 Status: Phase 1 completed Industrial Zone Phase 2 is next Completion: estimated between 2025-2030
Project comprises:
Sea Port
Capacity of 10 million twenty-footequivalent Unit (TEU) ofcontainers per year.
Industrial district
Will cover 63 million m. Willconsist of industrial and lightindustries, research anddevelopment, business office,services, hospitality, educationand community services.
Waterside resort
The number of hotel rooms andsuites are proposed to be 25,000hotel rooms in more than 120hotels.
Financial island
The Central Business District willoffer 3.8 million m of officespace, hotels and mixed-usecommercial space.
Residential district
Will include 260,000 apartmentsand 56,000 villas. This areainclude residential, commercialand recreational areas.
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King Abdullah Economic City List of Companies Awarded Contracts in Phase 1
Aseer Trading, Tourism and Manufacturing and ContractingSectors
Al-Fozan Co. Manufacturing of construction material
Al-Muhaidib Wholesaling of Building Material
Dallah Al-Baraka Cleaning and Maintenance Construction
Khayyat Group Construction of a cement project
Bin Laden Group Construction conglomerate awarded theconstruction of the residential towers
Orascom Construction, cement plant
AlBabtain Power and Telecommunications
Saudi Oger Construction, Printing, Telecommunication, RealEstate Development, Utilities, IT Services
O tl k
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Outlook
High levels of liquidity combined with low rates of leverage inthe banking sector and strong demographic fundamentals
point to most favorable prospects for the real estate andconstruction industry in the Kingdom
With high population growth and low home ownership levels,the real estate sector is experiencing strong demand for
housing.
In order to meet this demand, the Kingdom will need to build1.5mn new homes by 2015. Residential construction will be
further boosted with the introduction of a new mortgage lawlater this year. Once in place, the law will allow a wider accessto property ownership in the Kingdom and it is estimated thathousing loans could increase from USD 1.1bn in 2007 to USD12.3bn by end-2010
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Announced Projects 2009-2011
GCC Projects by Sector ($Millions)
KSA Projects all Sectors
($ Millions)
MEED Project March 2009
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Huge Demand for Housing
With increasing population there is huge unmetdemand for housing in the Kingdom
with increasing constellation of majoritypopulation confined to only three cities andthree provinces challenges for providinghousing is enormous
Current household occupation pattern andelectricity consumption trends speaks volumesabout the imminent challenges
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Occupied Housing Pattern
Province Units PercentageArriyad 221624 20 %
Makkah 429144 38 %
Almadina 114897 10 %
Alqasim 22112 2 %
Eastern Province 175184 16 %
Province Value PercentageArriyad 94698 9%
Makkah 383743 38%
Almadina 86399 8%
EasternProvince 65210 6%
Apartment House
Province Value Percentage
Arriyad 243577 35%
Makkah 66750 10%
Almadina 19895 3%
Eastern Province 134095 19%
Villa
Electricity Consumption
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Electricity Consumption
Electricity Consumption Of The Kingdom By Type Of Consumption And ItsRatio To The Total during 2008, (Megawatts/h)
Regions
Type of consumption Central Eastern Western Southern Total
Residential 31,697,666 18,569,845 35,961,379 10,458,169 96,687,059
Ratio to the total 56.7 34.1 65.2 76.1 53.9
Industrial Ratio to thetotal
3,894,921 7.0 25,369,271 46.6 4,160,4517.5
142,324 1.0 33,566,96718.7
Governmental Ratio tothe total
10,476,519 18.7 4,793,625 8.8 7,214,17213.1
1,821,954 13.3 24,306,27013.6
Commercial Ratio tothe total
7,476,239 13.4 5,066,875 9.3 7,242,48213.1
1,236,969 9.0 21,022,56511.7
Agricultural Ratio tothe total
2,399,270 4.3 605,297 1.1 608,1101.1
76,647 0.6 3,689,324 2.1
The total for the region 55,944,615 54,404,913 55,186,594 13,736,063 179,272,185
Ratio to the total 31.2 30.3 30.8 7.7 100.0
Source: Saudi Electricity Company
P i i l H i fi id i KSA
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Principal Housing finance providers in KSA
Middle & Low-income households were providedassistance through:
Free land grant program and REDF Loans. High rise public housing. Housing by charitable institutions
Ministries Various ministries have provided either Housing or
loans to their employees.
the private sector Developers, independently or with assistance from
government. Joint stock companies Institutions like ARAMCO,SCECO, Saudi Real- Estate
Company. Informal financing and individual savings
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Key Challenges
Historically, private sector involvement in theconstruction market was limited. Now, governmentefforts are being made to increase private investmentand as a result, private developers and constructioncompanies are entering the market to gain a share of thegrowing market.
The 2009 budget was the largest budget in theKingdoms history with USD 127 billion in continuedinvestment in projects that ensure sustainable and
balanced economic development. The new capitalbudget was 36% higher than capital budget of 2008, with
7% allocated to infrastructure.
However, there are serious structural barriers that mayhamper future growth potential of this important sector
Key Challenges
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Key Challenges
Land supply Policies fall short at provision of land at affordable
prices. Lack of measures to optimize services, as it is a major
contribution to cost.
Labor & Standards Indigenous labor and technologies are limited to the
small proportion of professional labor. lack of codes and standards is also adding to the costs ofhousing construction.
Municipalities play a limited role.
Population distribution within the Kingdom ishighly asymmetric Three Provinces: Makkah, Riyadh and Dammam
contains almost 52 percent of total population There are several regions without access to full
government infrastructure and services
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Key Challenges Building Materials
With exception of basic raw materials, all other inputs for the sectorare imported and hence the sector is susceptible to business cyclefluctuations
Construction material affordability and quality is not addressed
Government funding for housing has been very slow and
inadequate in the past and does not cater to all sections ofsociety
Budget allocation and credit allocation by the banking sectorhas been inadequate especially for the middle incomehouseholds In the mid 80s Real Estate Development Fund (REDF) funding
dropped from more than 600 million to 200 million SR, due to a dropin oil prices. The second drop was in the beginning of 1990s due tothe Gulf war resulting in further shortage of funding.
Heavy collateral obligation by private banks lending to the housing
sector keeps middle-salaried group out of the sector
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