Strong macroeconomic drivers of Saudi Arabia keep the long-term outlook of the real estate sector positive, said a new update released by NCB Capital, the GCC’s leading wealth manager and the kingdom’s largest asset manager.

“Data on construction contracts indicate a strong pipeline that continues to focus on real estate,” said the authors of the report, Abdulelah Babgi and Mohamed Tomalieh, equity research analysts at NCB Capital.

“However, concerns for the sector include the impact of new governmental programs such as Land and Loan, project delays due to Saudisation measures and cuts in the number of pilgrims.”

“We remain Overweight on Dar Al Arkan with a PT of SR11.9 ($3.17). Our price target has been revised down marginally due to the disappointing 2Q13 results which we believe is due to lower land sales,” the authors said.

“However, the stock trades at an attractive 0.7x P/B given a promising project pipeline and a large undeveloped land bank. We believe this supports our Overweight call. We remain Neutral on Taiba and Al Akaria with price targets of SR38.0 and SR33.2, respectively.”

“The sector is up 44 per cent YTD, outperforming the market by 26 per cent,” said the authors.

“The rally has been led by Jabal Omar which is up 62 per cent due to investor optimism on its projects in the vicinity of the Holy Mosque in Makkah. From the stocks under our coverage, Taiba has increased the most at 67 per cent YTD. We believe this is due to the expectations of significant compensations from possible compulsory purchase orders of properties in Madinah by the government.”

“Construction contracts show that the value of contracts awarded in 2Q13 reached SR54 billion (SR103 billion in 1H13), with around 39 per cent awarded to the real estate sector – hence, indicating the strong demand present. Moreover, the Ministry of Housing announced that the current shortage of housing units in the kingdom is around 700,000 which we believe will further support the demand in this sector,” the authors added.

NCB Capital’s report notes that the Saudi government remains an important stakeholder in the real estate sector in the kingdom.

Newly introduced policies such as Land and Loan and Ejaar in addition to loans from SREDF aim to narrow the gap between demand and supply, regulate the rental market and encourage home ownership, the report said. – TradeArabia News Service