Saudi Arabia's Jadwa Investment, one of the country's largest privately owned investment firms, is planning to invest in domestic real estate as it expands into new asset classes, hoping to cash in on booming demand for new homes.

Supply of housing in Saudi Arabia lags strong demand, the result of rapid population growth and slow progress in government building programmes designed to ease the shortage.

Tariq Al Sudairy, managing director and chief executive officer of Jadwa, said the group will focus on the asset class and target major cities like Riyadh, Makkah and Madinah.

"We see a lot of potential for growth in this space - both in terms of real estate development and income generating projects," he said.

Jadwa would partner with real estate developers to select and execute projects on behalf of clients. Funds would be set up as projects were selected and the size of the investment would be determined on a case-by-case basis.

"The type of projects are localised but in general, we expect residential to be in focus, along with retail and hospitality," Sudairy said.

Jadwa, which is split into asset management, private equity (PE), investment banking and brokerage, had more than SR20 billion ($5.33 billion) in assets under management in the third quarter, across its asset classes.

Sudairy said private equity in the kingdom offered significant potential as well, as it represents less than 0.1 per cent of the Saudi economy compared with well above one per cent in more mature markets. Jadwa itself hopes to seal an unspecified deal as early as the first quarter of 2015.

"There is a lot of potential for private equity in Saudi Arabia, which is why we are giving it a lot of attention," Sudairy said. "We're engaged in multiple discussions at various stages of the process."

He did not provide the scale of the deal.

Jadwa has spent over SR4 billion ($1.06 billion) on PE investments across multiple sectors since it was established in 2005, targeting a rate of return of at least 20 per cent.

Along with Dubai-based Fajr Capital, Jadwa acquired Jeddah-based waste management firm Global Environmental Management Services earlier this year from a group of investors led by Ashmore Group at an undisclosed value.

It has also exited or partially-exited three investments in 2014, including taking hospitality firm Al Hokair and Al Hammadi Company for Development and Investment public.

The Saudi stock market is set to open to foreign investors for the first time in the first half of 2015.-Reuters