As the supply-demand gap continues to widen in the Saudi housing sector, affordability, access to mortgage finance and lack of suitable products remain the key barriers to home ownership amongst nationals, according to a report.

Saudi has the largest real estate market in the GCC, but the least developed mortgage market, and this has resulted in a shortage of owner-occupied residential housing, particularly at the lower end of the income scale, said the report prepared by the CBRE Bahrain Research Team.

Saudi Arabia’s mortgage penetration rate is estimated at around 2 per cent, while markets such as the UAE have rates at around 14 per cent, it stated.

Even this figure is well below mature western markets such as (for example) the United Kingdom where the penetration rate is currently around 70 per cent.

Despite the shortage of housing, apartments continue to be unpopular with Saudi nationals for a variety of reasons including lack of privacy, legal structures for ownership of common areas, the inability to expand accommodation and the lack of secondary trading which would allow owners to move up and down the property ladder, the report pointed out.

However, the high cost of land, the urban sprawl that is taking place in Riyadh, and a softening of conservative attitudes may have the impact of altering this historic position, it added.

In other less conservative centres in the region such as Dubai, Abu Dhabi, and Doha, the high cost of land, the large expatriate communities, transportation problems and the availability of services and transparent legal structures have encouraged a move to apartment living, particularly amongst the expatriate populations.

However a review of ‘luxury’ apartments for rent in Riyadh has revealed that there are virtually none available, certainly when compared with other major cities in the region.

'The highest quality apartments for rent are available at rents around 26 per cent the level of top-end rents in Doha, for example. This is in the context of a tiny number of quality apartments for rent and indicates that the market for this particular product continues to be very weak at present,' said the CBRE team.

The demand for expatriate compounds in Riyadh is very strong at present, with very high occupancy and rapidly growing rents, partly due to a current mismatch between demand and supply, it added.

Similar to Riyadh, most housing developments in Jeddah take place on a relatively small scale, with developers typically building projects comprising no more than 30 units.

This is partly the result of the lack of available development finance and restrictions which mean that developers are not able to apply downpayments to cover construction costs.

Apartment development has long been relatively popular on the corniche, but these units have historically been favoured by buyers from Riyadh who use the properties for second home summer residences.

'Apartments have been built for primary home users in central Jeddah but take-up to date has been weak and there have been widely publicised problems between owners unable to agree to common area charges and management.'

In many cases, owners have publicly stated that they ‘regret’ such purchases and unless legislative changes are made this particular market opportunity is likely to remain somewhat stunted by negative publicity, the CBRE report stated.

With land prices in Jeddah being largely over-speculated similar to other major centres in the Kingdom, developers have found it hard to address the needs of the affordable housing sector and therefore developments for sale in Jeddah continue to be focused on the middle income sector with reasonable levels of success, the property expert said in the report.

The level of pent-up demand for housing from any sector capable of servicing a mortgage is substantial given the extremely low levels of mortgage penetration in the market at present.

The strong economic performance of Saudi which is likely to carry on through 2012 as a result of ever increasing oil prices is likely to continue to stimulate expatriate employment particularly at senior executive level, said the CBRE. 

Consequently, and similar to Riyadh, the demand for expatriate compound housing in Jeddah currently far exceeds demand especially for the better quality, well maintained properties, it added.-TradeArabia News Service