Saudi Arabia - Residential Real Estate Outlook (Jun 09)

Kuwait Financial Centre “Markaz” REAL ESTATE RESEARCH

Saudi Arabia Residential Real Estate outlook

Executive Summary

We expect the total demand for residential units in the Kingdom of Saudi Arabia (KSA) to be in the range of

500,000 to 800,000 units during the period 2009-13 driven by our expectation that the economy would get back on

growth track from 2010 driven by recovery in oil prices. We

expect the passing of mortgage law to cause a trend shift in demand leading to levels 50% higher than without it.

Residential real estate’s share in the total capital investment came down from its high 20%+ levels during early 2000s to

13% in 2008, driven mainly by shortages in ownership

financing. This is corroborated by a 100 bps contraction in mortgage lending as a percentage of total credit during the past

three years.

The younger generation of KSA, in the age group of 20-35, is

currently deprived of real estate ownership and they live along with the elder generation, which also leads to the choice of

villas as preferred housing units. They have to face a rental cost

at 45% of their current income levels or a monthly mortgage at 41%, should they decide to move out. The higher equity levels

of 50% on an average, which is the result of lower mortgage penetration also magnifies the lack of affordability.

The mortgage law, if and once passed, will include them in the

target market and expand the potential for residential real estate in KSA thereby turning around the waning investment

trend seen in the past decade.

Supply scenario, currently dominated by projects worth less

than USD 50 mn apiece, is slowly drifting towards more organized supply due to the planned mega cities. However,

completions will happen in a phased manner with major

completions planned during mid-next decade, thus providing attractive opportunities for developers of smaller size projects

and also for other big projects.

The current major cities of Riyadh, Jeddah, Mecca, Al Khobar &

Dammam will remain the centre of activity for the next five

years till the shine gets shared by the planned mega cities. Rentals and prices contracted on an average by 10%, much less

than other cities in the region driven mainly by fall in risk appetite.

We expect rentals and prices to bounce back again following economic recovery and re-emergence of risk seeking and we

expect Mecca and Jeddah to experience a much higher growth

compared to other cities mainly due to the current pent-up demand. We expect the rentals and prices to grow at a much

higher pace on the passing of the much awaited mortgage law because of the trend shift it creates.

June 2009 Research Highlights:

An outlook on the Residential Real Estate Sector of The

Kingdom of Saudi Arabia

Bassam N. Al-Othman Senior Vice President

+965 2224 8011 [email protected]

M.R. Raghu CFA, FRM

Head of Research


Milad A. Elia

Assistant Vice President


Venkateshwaran Ramadoss

Senior Research Analyst

+965 2224 8000 ext 1144 [email protected]

Kuwait Financial Centre “Markaz”

P.O. Box 23444, Safat 13095,

Kuwait Tel: +965 2224 8000

Fax: +965 2242 5828 markaz.com

REAL ESTATE RESEARCH

June 2009

Kuwait Financial Centre “Markaz” 2

Economy Consensus real GDP growth expectations for 2009 is in the

range of -1.8% to +1% (Appendix-1) down from 4.1% in 2008 mainly due drastic production cuts driven by fall in oil prices

and this signifies the positive growth expectations in non-oil

economy. Economic activity in KSA is expected to remain sustained by the expansionary increased public spending

planned in the budget to the tune of SR475 bn, up by 16% Y-o-Y, till oil prices stabilizes at a level which makes operation at full

capacity and expansions viable and the economy recovers to growth path by 2010. Other sectors, essentially free wheels to

these two aspects of the economy, will benefit from the above

said developments both in the short and medium terms. In terms of the Real Estate sector’s performance, ownership of

dwellings, which is the core RE’s contribution to GDP has remained at an average of 6.7% consistently for a decade.

Exhibit 1: Economy-Historic trends and growth estimate

-15%

-10%

-5%

0%

5%

10%

15%

20%

-600

-400

-200

0

200

400

600

800

Yo

Y R

ea

l G

DP

gro

wth

ra

te

Re

al

GD

P B

n S

au

di

Riy

als

Oil Sector GDP Non-oil GDP

YoY Growth-Oil GDP YoY Growth-Non-oil GDP

Source: Ministry of Economy and Planning, Samba, Markaz estimates

Residential The total demand for residential units in KSA would be in the range of 500,000 units to 800,000 units during 2009-13 depending upon the developments in economic

recovery and the lending conditions. The demand would experience a 50% upward trend shift from its current levels if the mortgage law comes into force thereby turning around from the historic trend of waning investment in residential real estate and lack of home ownership affordability for the younger generation. The currently planned organized supply would provide with around 73,000

units during 2009-13 and the rest would be tapped by current

and future projects by smaller size developers and major projects that would be planned in future. We expect the rentals and prices to start growing with oil price and economic recovery and concomitant reemergence of risk

seeking, and to grow by a much larger scale when the ever awaited mortgage law gets passed due to the demand pick-up that happens due to the trend shifting.

Oil price stability to

improve economic prospects

Slump in real GDP growth

during 2009 due to

negative real oil-GDP growth offset by growth in

non-oil GDP driven by enhanced public spending

Real Estate market players to prepare themselves for

a fundamental turn around


June 2009


Exhibit-2 : Incremental demand/supply expectations

39

127171

201174

39

115121 9374

39 30 28

100100

0

50

100

150

200

250

2009E

2010E

2011E

2012E

2013E

2009E

2010E

2011E

2012E

2013E

2009E

2010E

2011E

2012E

2013E

Eco recovery + Mtge

law

Eco recovery & No

Mtge law

Prolonged slowdown

& No Mtge law

Ho

usin

g d

em

an

d (

'00

0 u

nit

s) Numbers on bars indicate the unorganised supply potential

Supply from major projects Unorganised Supply potential

Source : Markaz estimates

The three scenarios put forth in Exhibit-2 clearly indicates that while demand will recover from its current levels as soon as the

economy revives, the passing of mortgage law will shift the demand trends to a level 50% higher than the levels without the

law cumulatively. Exhibit-3 below talks about the assumptions

underlying the scenarios behind the above demand forecasts. We believe that the possibility of Scenario-3 to materialize in the

future to be very low due to improving oil price and as we wait for the mortgage law to be passed, hopefully soon.

Exhibit-3 : Assumptions behind the demand

Scenario Assumptions

Scenario-1 Economic recovery by end 2009/early 2010

Mortgage law by end 2009/early 2010

Current supply trends prevail

Scenario-2 Economic recovery by end 2009/early 2010

Mortgage law remains awaited

Current supply trends prevail

Scenario-3 Economy into a slow recovery path till 2012

Mortgage law remains awaited Supply contracts further

Years of under-investment in residential real estate

Residential real estate is one major type of capital asset and a

sustainable trend in its share in the overall capital formation is

essential for the prevalence of equilibrium conditions in the economy. Residential real estate investment has been growing

at a much slower CAGR of 4% in the past decade in nominal terms compared to the 10% growth in overall investments

(Exhibit-4). In the past five years, marked by high nominal capital and GDP growth, overall capital formation grew at a

CAGR of 16% in nominal terms while residential real estate

grew by a much smaller 6%. The better growth in non-residential real estate capital, which was at a decadal CAGR of

15% and by 25% in the past five years should not be construed for commercial and retail real estate assets as this includes the

infrastructure capital spending as well.

Passage of mortgage law to result in a trend shift

with a 50% boost in demand cumulatively

Timing of economic recovery and mortgage

law the main drivers for

sector recovery

Investment in residential

real estate marked by years of relative and

absolute under

investment


June 2009


Exhibit 4: Capital formation-real estate trends

0

50

100

150

200

250

300

350

0%

5%

10%

15%

20%

25%

30%

35%

40%

GF

CF

-S

R B

ns

Re

al

esta

te's

sh

are

of

GF

CF

(%

)

Total-GFCF- SR Bns (RHS)

Residential Real Estate

Non-Residential Real Estate (incl infrastructure)

Source: Ministry of Economy and Planning, Markaz analysis

Lack of ownership financing the root cause

The main cause of the dramatic fall in the residential real estate

capital build-up is the lack of mortgage lending. Exhibit-5 which lays down the trends in credits extended by commercial banks

towards building and construction mirrors Exhibit-4 thus

explaining the reason behind the dismal performance. The effect of the current economic slowdown hit bank lending hard which

has resulted in lending contraction. Given the historic dismal lending to RE&C sector, we can expect no significant changes in

the trends in bank lending to real estate. Mortgage lending as a

percentage of total residential real estate capital formed stood at a meager average of 3% in the past five years. Though it has

grown up to 5.5% in 2008, it still indicates dismal penetration. KSA is among the least levered countries in GCC, measured in

terms of Bank Credit to Private Sector as a % of nominal GDP (Appendix-2) and hence, is not a highly levered economy. This

scenario warrants the necessity for the passage of the mortgage

law which would remove these impediments while a further delay could put the sector in a gridlock till the time it is passed.

Exhibit 5: Bank lending to RE & Construction

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

0

100

200

300

400

500

600

700

800

Se

cto

r p

erce

nta

ge

Ba

nk

le

nd

ing

-B

n R

iya

ls

Total bank credit

Loans to construction sector as a % of total credit

Real Estate Financing as a % of total credit

Source: SAMA, Markaz analysis

Growth in non-residential

investments in line with

overall investment growth, but includes infrastructure

investments and hence not a perfect indicator of

commercial and industrial

real estate

Trends in lending to real

estate and construction

resembles and has caused the lower investment trend

as data proves


June 2009


Home ownership and rental affordability

The Labor Ministry provides with the average salary earned by

employees working in private sector which stands as in Exhibit-6. Average salary for a male employee in Riyadh stands at SR

4100 per month which compares well with the per capita GDP level of SR 72000 p.a. With the current average family size of

6.4, which we get from the population and housing statistics,

and the dependent ratio of 3.1, we get to an average earning capacity of more than 10000 per family, if the younger

generation lives along with their parents. In this situation, an average villa rental of c.3000 SR per month becomes

manageable. However, if the younger generation decides to

move out, thereby reducing the average family size close to 5, the family income drops to 4500 at the current level assuming

single person employment and with the dependent ratio of 1:4 and the average apartment rent of c.SR 2100, the rental

expenses as a % of salary shoots up to 47% and it remains

higher (35%) than the larger family arrangement (30%) even in case of a two member earning family, as the average salary for

women is lesser than men.

Exhibit 6: Average private sector salary (Saudi Riyal)

Region

Saudi Non-Saudi

Male Female Male Female

Riyadh 4061.04 2551.32 1095.53 1236.69

Makkah 3148.04 2568.09 1069.25 1561.56

Eastern Prov. 4280.83 2404.56 1081.49 2690.78

KSA 3679.59 2419.62 997.87 1577.78 Source : Labor Ministry

In case of expats, the available statistics imply an average of a

workforce size of 3 per household, which compensates for the lower average income levels on an average, the average family

income works out to around SR 3500 and since majority of them

stay in either an apartment or in a floor in a villa or traditional house, the average rent would be around SR 800 to SR 1000

which is less than 30% of their total household income.

Exhibit-7 : Ownership and rental cost as a % of income

Villa-bigger

household

size

Small household

size - single

member earning

Small household

size – two

member earning

Expat’s

household

Monthly Rent 30% 45% 35% 28%

Cost of

ownership 3600% 5400% 4200% 3360%

Monthly EMI 28% 41.3% 32% 26%

Exhibit-8 : Scenario analysis of mortgage affordability

Years\Interest rate 3.5% 4.0% 4.5% 5.0% 5.5%

10 53.4% 54.7% 56.0% 57.3% 58.6%

15 38.6% 39.9% 41.3% 42.7% 44.1%

20 31.3% 32.7% 34.2% 35.6% 37.1%

25 27.0% 28.5% 30.0% 31.6% 33.2%

Smaller families and apartment living not an

affordable option for the

younger generation given the current income levels

Expats better off with higher workforce size per

average household

Need for higher tenure

mortgages to enable mortgage affordability


June 2009


Given the above rent vs income scenario and the average cap rate of 10%1 in Riyadh, the cost as a % of monthly salary will

be as in Exhibit-7. A monthly mortgage installment (EMI) above

30% will be strenuous given the cost of living and hence not affordable for the small household family. It becomes even more

unaffordable when the interest rate rises and is viable only in case of mortgage finance availability for 25 years at the current

income/rent/price levels. The yields earlier were lower than 10%

and that would have increased both the cost of ownership and thus the EMI.

The above analysis assumes that the cost of ownership is

entirely be financed by debt. However, the lending scenario in

KSA involves putting in equity as high as 50% if we study the total lending to RE mortgages as a % of residential real estate

capital formation (Exhibit-9). This exacerbates the above calculations and makes mortgage out of reach for many in KSA

and provides us with adequate base as a support for our argument. An equity requirement as high as 50% on an average

means, we have a margin of safety of 100% in terms of errors

in our inputs regarding the price and rentals. Mortgage financing involves longer duration lending and would seek lower equity

which boosts home ownership affordability by way of reducing the monthly EMI as a % of income.

Exhibit-9 : Ratio of debt financing to total capital cost

0%

10%

20%

30%

40%

50%

60%

0

5

10

15

20

25

2003 2004 2005 2006 2007 2008C

red

it a

s a

% o

f ca

pit

al

Re

sid

en

tia

l ca

pit

al

form

ed

SR

Bn

Mortgage and Bank credit to Residential RE

Credit to Residential RE as a % of Capital formation

Source: SAMA, Markaz analysis

Mortgage law unlocking demand and shifting trends

65% of Saudis live in owned houses and 56% of houses

occupied by Saudis are owned by them as of 2007 and individuals living in owned houses grew at a CAGR of 5.52%

during 2004-07. The EU average ownership ratio stood at 61% and the US average was at 70% and Saudi doesn’t look far

behind the developed countries’ average at first sight, thus

putting questions on the scope of future demand from this segment and the need even for the ever awaited mortgage law.

However, the average size of families moving to own houses during 2004-07 was astounding at 9 and the average family size

of Saudis staying in villas as at 2007 was 8 indicating that it is

1 Colliers International

Data indicates higher equity levels on an

average and provides with

margin of safety for input errors in our analysis

Home ownership limited to

larger families indicating lower ownership among the younger generation


June 2009


the senior generation of the family that is buying houses and the younger generation gets along.

The younger generation has been deciding to postpone the decision to buy a home so that they can avoid a compromise on

their living standards. As economy recovers and salary levels improves and credit is provided after the mortgage law coming

into force, this segment will open up to demand and will result

in a doubling of the size of potential demand and thus will be trend shifting. Exhibit-10 provides us with a clearer view of the

demand potential once the mortgage law is announced. Until then major developments will be predominantly targeting Villas

for the higher income group.

Exhibit-10 : Mortgage law and trend shift in demand

80 and above75 - 7970 - 7465 - 69

60 - 6455 - 59

50 - 5445 - 49

40 - 4435 - 39

30 - 3425 - 29

20 - 2415 - 19

10 - 145 - 9

1 - 4Less Than 1

Male Female

MktsizepostMortgage Law

Bars measure

the population

size in each

age group

MktSizenow

Source : Central Department of Statistics

Supply characteristics – big players vs small players

Supply side of KSA’s Real Estate sector is dominated by small

developers who develop stand alone units and the picture is slowly changing due to the mega cities planned. These projects

account for c.80% of all developments worth more than USD 50

mn which stands at around USD 200 Bn in total. The sheer size of the forthcoming development may tempt us to think of a

flood of supply, however, as Exhibit-11 shows, much of the supply is due only in the middle of next decade. Thus, the

shorter term future should continued to be dominated by smaller sized developers and projects and stand alone

properties.

Supply of residential properties is dominated by small sized players developing stand alone properties of average value less

than USD 50mn and is difficult to quantify. Mega cities dominate the bigger size residential projects apart from which,

development by Dar Al Arkan and Emaar Properties are the ones

which are scheduled to be completed in the next couple of years. Appendix-3 puts the detailed account of major projects

and their details which accounts for projects worth USD 495 Mn in 2009, 2498 Mn in 2010 and 4892 Mn in 2011.

Mortgage law to provide

home ownership

affordability to the younger generation

Domination of small sized residential real estate

developers


June 2009


Exhibit 11: Completion schedule plan of big projects

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

Va

lue

of

pro

jects

(U

SD

Mn

)

Completion of developments to happen in a phased manner

with majority of the completion happening during mid next

decade

Source : MEEDprojects

Regions in depth

Riyadh, Makkah and Eastern Province, which account for 70% of the KSA’s population and economy, has the major cities of

Riyadh, Jeddah, Al-Khobar and Dammam. These cities account for more than 80% of the total population in these regions and

economic activity except for the Eastern Region wherein the

industrial city of Jubayl has a considerable share of both population and economic activity.

Exhibit 13: Typical composition of non-oil GDP

6%

36%

18%9%

8%

7%

79%

53%

73%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Riyadh Eastern Province Makkah

Composition of GDP

Agriculture Industry & Mining Construction Services

Source: SAGIA

Riyadh region :The dynamics of this region will throw lights on the characteristics of the region’s main city, Riyadh. Exhibit – 13

depicts the typical composition of Riyadh’s non-oil GDP. Being the capital city as well as business centre, services sector

contributes more than 75% to the region’s GDP. Hence, the

region’s economic prospects should be weighed in terms of the prospects of the service sector in KSA in general which is not

looking gloomy given the government’s spending plans and its trickle down effects. Expansion in government spending needs

support from financial, trade and other services and the region

stands to benefit.

Bigger sized

developments to get completed during mid

years of next decade

Service sector dominated

non-oil GDP and most prominent contribution in Riyadh


June 2009


Makkah region: In this highly populated region, agriculture has a far less role to play in the economic activity in the region,

which is dominated by the tourism related trade and service

activity concentrated in the holy city of Mecca and the city of Jeddah. The region also has an industrial base manufacturing

mainly food and beverages, petrochemicals and other non-metallic industrial products including rubber and plastic.

Eastern Province: This region has the twin cities of Al-Khobar and Dammam and the industrial city of Jubail. This region

accounts for most of the oil fields and is the hub for industrial activity. The region’s economic prospects depends entirely on

the oil price dynamics for job creation and income generation.

Services play a facilitative role in the highly industrialized economy.

Demand expectations – main regions

Population – trends

The Central Statistics Department provides with the population numbers for Riyadh region indicates that Saudi nationals in

Riyadh grew at 3.5% CAGR, more than twice the Kingdom’s rate (1.5%) due to migrations to Riyadh city from other regions

during 2000-04. In the latter period, the growth got more in line

with the Kingdom’s pace which means lower migration due probably to the increased availability of regional economic

opportunities. Saudisation and improved opportunities in the neighboring GCC countries led to a fall in expats growth during

2004-07 to 2% CAGR from 4% during 2000-04, more in line with the trends in the Kingdom. We expect the falling expat

growth trend to continue and be at 1.5% to 2% range in the

coming years. We expect fewer migrations from other regions to Riyadh as well and expect the Saudis population to grow in the

range of 2% to 2.3% in the coming years.

In case of Makkah, the period 2000-04 witnessed a much slower

Saudi population CAGR of 0.22% which slowly is on the track to

catch up the Kingdom’s rate from 2004. We expect the growth rate to be at 1.6% for Saudis and for expats at 1.5% range, in

line with the recent trends. Eastern Province too faced inter regional migration during 2000-04 which got receded in the later

years. We expect the population growth in the region to be

more in line with the Kingdom’s rate.

Housing preference - Saudis/Expats

Statistics shows that, in Riyadh, while 50% of Saudis prefer a

villa, 56% of expats stay in apartments. Only 17% of Saudis stay in apartments and the rest live in either a villa or a

traditional house or a floor in these buildings. Saudis preferring

to stay in an apartment is much higher in Makkah (47%) and the Eastern Province (28%) as of 2007. On the whole, 82% of

people lived in traditional type of accommodation in Riyadh and the number goes down to 71% in Eastern Province and 53% in

Makkah region. This implies the higher apartment penetration in

Jeddah and the cities of Al-Khobar and Dammam .

Industrial activity contributes to the GDP in

Makkah and Eastern

Province

Lower cross regional

migrations to Riyadh and stable expat growth

trends to prevail

Saudis prefer Villas and Expats prefer apartments

currently


June 2009


As exhibit-14 shows, apartment outgrew villas during 2000-04, which is explainable by the growth in expat population during

this period. Given the outlook of Saudi domination in population

growth, villas should be the preferred form of housing development in Riyadh, though there is a possibility of trend

shift towards apartments. During the years 2004-07, stock of apartments grew at the rate of 3.7%, while the apartment

demand (17% of Saudis and 56% of expats) grew at 1.5%.

However, the average household size in apartments increased from 4.14 in 2004 to 4.49 in 2007, growing 400 basis points

more than the growth in average household size in Riyadh, which indicates that, Saudis increasingly prefer staying in

apartments and we expect the percentage of Saudis staying in

apartments to rise from 17% in 2007 to 20% in 2012.

Exhibit-14 – Distribution of housing stock

750 961 1021 982 1178 1245 465 533 566

0%

20%

40%

60%

80%

100%

Riyadh Riyadh Riyadh Makkah Makkah Makkah E. Prov E. Prov E. Prov

Number on top of each bar indicate the total available housing

units in thousands

Villa Traditional House A floor in TH/Villa Apartment Other

Source : Central Department of Statistics

The average household size in Riyadh was 6.3 as of 2000 and it

contracted to 5.5 in 2004 only to expand again to 5.7 in 2007. Assumptions on household size is key in a typical residential

demand model and changes in household size is a result of

many structural factors and indicates the extent of demand supply (mis)match. It is impacted by population growth

patterns, changes in the composition of population, economic growth and supply of housing stock. Keeping other factors

constant, household size falls with economic growth and supply.

The effect of changes in composition of population on the household size depends on the cultural factors of a country.

Demographics skewed towards young age/expatriates would contract the household size with a smaller family culture and

vice versa . We intend to forecast the demand by assuming scenarios in the behavior of household size based on

assumptions laid out in Exhibit-3 and with which we arrived at

the demand size as mentioned in Exhibit-15.

Saudis started to prefer

apartments we expect the trend to continue to

grow

Household size tends to

fluctuate due to various factors and hence critical

to housing demand

expectation


June 2009


Exhibit-15 : Incremental demand for housing units

Region Scenario 2009E 2010E 2011E 2012E 2013E

Riyadh

Scenario-1 8355 35494 45173 51999 54400

Scenario-2 8355 28382 34703 26286 25758

Scenario-3 8355 7145 6522 28819 39342

Eastern Province

Scenario-1 4514 16689 26020 34195 28703

Scenario-2 4514 16591 17112 11066 13687

Scenario-3 4514 4199 4311 16064 19735

Makkah

Scenario-1 13309 27413 36946 43254 44001

Scenario-2 13309 27639 26400 27053 27728

Scenario-3 13309 10233 12049 24097 23661

Supply

The supply is dominated by smaller size players with projects valued less than USD 50 mn and supply from bigger sized

projects looks dismal compared to the demand expectations above (Appenix-3), which implies huge opportunities for smaller

size developers and even for further bigger projects. The mega

cities planned would not be directly impacting the cities of these regions during 2009-13, however, they could compete in the

longer term in terms of populace and economic activity.

Exhibit-16: Unorganized supply potential in regions

0

10

20

30

40

50

60

2009E

2010E

2011E

2012E

2013E

2009E

2010E

2011E

2012E

2013E

2009E

2010E

2011E

2012E

2013E

Riyadh Makkah Eastern Province

Ho

usin

g u

nit

s d

em

an

d (

'00

0s)

Supply from major projects Unorganised Supply potential

Source: MEEDprojecs, Markaz analysis

Rental Trends & Outlook

Both the rental level and the correction is incomparably small in case of KSA cities compared to other GCC cities. Rentals grew

on an average by 25% YoY in 2008 before correcting by 10% in Q1-09. Prices too reportedly grew up to even 100% in some of

the prime locations of main cities like Riyadh which too faced a

correction evident by the rise in yield to the extent of 200 basis points. Both the rise and fall is driven mainly by changes in risk

appetite which drives up/down the value of all risky assets of which residential real estate is no exception.

As investors seek risk again, we expect the rentals to bounce

back sharply tracking prices. We expect Mecca & Jeddah to

grow much more than Eastern Province and Riyadh, mainly due to the sheer size of its current pent-up demand (Exhibit-15).

Planned mega cities not

to impact the demand in the current cities of

domination in the near term

Rentals to grow much more in Makkah and

Jeddah than Eastern

Province and Riyadh


June 2009


Riyadh and Jeddah, though has corrected of late, will be quick to bounce back given their strong fundamentals and the

expected demand. Rentals in Al-Khobar and Dammam can be

expected to bounce back once the oil price stabilizes and overall economy stabilizes and thus will be the last set of places to

recover. We expect that the price and rental growth would be of staggering proportion once the mortgage law is passed and

the demand potential is increased in all these regions.

Exhibit-17 : Recent trends in rentals

-30%

-20%

-10%

0%

10%

20%

30%

-500

-400

-300

-200

-100

0

100

200

300

400

500

Riy

adh

Dubai

Abu D

habi

Doha

Jeddah

East

ern

Pro

vin

ce

Makkah

Co

rre

cti

on

fro

m p

ea

k %

Re

nt-

US

D/

sq

m/

an

nu

m

End 2008 Q1-09 Change %

Source: Colliers, Asteco, Markaz analysis

Rentals in KSA cities incomparably small

compared to other cities

in the region and has faced smaller corrections


June 2009


Appendix – 1 : Major developments scheduled for completion – residential segment

Source Real GDP growth % Month of update

EIU -1.0% May-09

HSBC 0.8% Mar-09

Standard Chartered 1.0% Jan-09

Samba -1.8% Mar-09

DB -0.5% Mar-09

Merryl Lynch -0.2% Feb-09

IMF -0.9% Apr-09

Appendix – 2 : Private sector credit as a % of GDP

Country Units Month

Bank Credit to Private

Sector Nominal GDP

Private Sector Credit as a %

of Nominal GDP (2008) Sources

UAE AED Mn Sep-08 727,661 928,510 78.37% UAE Central Bank, EIU

Bahrain BD Mn Dec-08 7,533 8,235 91.47% Central Bank of Bahrain

KSA SR Mn Dec-08 712,737 1,753,503 40.65% SAMA, Ministry of National Economy

Qatar QR Mn Dec-08 242,949 372,384 65.24% Qatar Central Bank

Kuwait KD Mn Dec-08 25,458 39,978 63.68% Kuwait Central Bank, EIU

Oman OR Mn Dec-08 8,759 23,049 38.00%

Oman Central Bank, Ministry of National Economy


June 2009


Appendix – 3 : Major developments scheduled for completion – residential segment

Project Developer Location Value-

$ Mn Year Details

Residential/Resort Districts Emaar, The Economic City King Abdullah Economic City

145 2009 616 apartments

Al-Qasr Mixed-Use Development

Dar Al Arkan Riyadh 350 2009 200 Villas 3800 Apartments

Jalmudah Apartment Buildings

RCJ&Y Jubail Industrial City

70 2010 6 four storey buildings

Esmeralda Suburb Emaar, The Economic City King Abdullah Economic City

500 2010 200 Villas

Residential/Resort Districts Emaar, The Economic City King Abdullah Economic City

120 2010 134 Villas

Residential Development: Phase II


150 2010 412 Units

Jubail Residential Development: Phase II


100 2010 193 Units

Yanbu Residential Development


100 2010 240 Units

Al Ghadeer Village Emaar Properties Al Khobar 600 2010 226 Villas

Al Tilal Dar Al Arkan Medina 65 2010 499 Villas – Phase I 1589 Villas – Phase II 1840 Units – Phase III

Al Basateen Residential Suburb

Kinan International Real Estate Development Co.

Yanbu 93 2010 200 Villas – Phase I 40 Villas – Phase II

Al Nada Village Dar Al Arkan Al Khobar 700 2010 242 Villas

Staff Housing Development Ministry of Education Dammam 133 2011 197 Villas

Al Muhamadiyah Tanmiyat Group Jizan 300 2011 2770 Units

Jeddah Lamar Development Zahran Real Estate Jeddah 160 2011 2 Towers – 60 & 68 Storeys

Housing Development King Fahd University for Petroleum & Minerals

Dammam 50 2011 100 Villas

King Abdulaziz University: Housing Project

Ministry of Education Jeddah 801 2011 1260 Units

Jabal Omar* Jabal Omar Development Company

Makkah 2700 2011 4235 Units

Olaya Towers GOSI Riyadh 268 2011 2 Towers – 34 & 36 Storeys

Mixed Use Tower KM Properties

Jeddah 300 2011 1 Tower – 30 Storey

The Seafront Project Seafront Company

Al Khobar 100 2011

Jeddah Residential Tower

Al Rajhi Development/ Tameer Holding

Jeddah 80 2011 1 Tower – 57 Storey

Source : MEEDprojects


June 2009


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June 2009

Strategic Research

Missing The Rally (Jun-09) Shelter in a Storm (Mar-09) Diworsification: The GCC Oil Stranglehold (Jan-09) This Too Shall Pass ( Jan-09) Fishing in Troubled Waters(Dec-08) UAE Outlook (Oct-08) Down and Out: Saudi Stock Outlook (Oct-08) Kuwait Stocks: Fair Value Not Far Away (Sept-08) Mr. GCC Market-Manic Depressive (Sept-08) Global Investment Themes (June-08) To Yield or Not To Yield (May-08) The Golden Portfolio (Apr-08) Banking Sweet spots (Apr-08) The “Vicious Square” Monetary Policy options for Kuwait (Feb-08) Outlook 2008: GCC (Jan-08) China and India: Too Much Too Fast (Oct-07) A Potential USD 140b Industry: Review of Asset Management industry in Kuwait (Sep-07) A Gulf Emerging Portfolio: And Why Not? (Jun-07) To Leap or To Lag: Choices before GCC Regulators (Apr-07) Derivatives Market in GCC (Mar-07) Managing GCC Volatility (Feb-07) GCC for Fundamentalists (Dec-06) GCC Leverage Risk (Nov-06) GCC Equity Funds (Sep-06)

Periodic Research Title Frequency

Markaz Daily Morning Brief Daily Markaz Kuwait Watch Daily Daily Fixed Income Update Daily KSE Market Weekly Snapshot Weekly KSE Market Weekly Review Weekly International Market Update Weekly Mena Mergers & Acquisitions Monthly Option Market Activity Monthly GCC Asset Allocation & Volatility Monthly Thought Speaks Monthly Investment Outlook Quarterly GCC Equity Funds Quarterly

Real Estate Saudi Arabia – Residential Real Estate Outlook (Jun-09) Saudi Arabia (Sep-08) Abu Dhabi (July-08) Algeria (Mar-08) Jordan (Mar-08) Kuwait (Feb-08) Lebanon (Dec-07) Qatar (Sep-07) Saudi Arabia (Jul-07) U.S.A. (May-07) Syria (Apr-07)

Sector Research

Real Estate Strategic Research Real Estate Earning -2009 (May-09) Supply Adjustments Are we done? (Apr-09) Dubai Real Estate Meltdown (Feb-09)

Markaz Research Offerings


June 2009

Bahrain Gulf Finance House (Oct-08) Esterad Investment Company

(Aug-08) Bahrain Islamic Bank (Aug-08) Ithmaar Bank (July-08) Tameer (July-08) Batelco (July-08)

Research Coverage Market Cap as % of total Market cap 29%

Qatar United Development Co. (Feb-09) Qatar Fuel Co. (Dec-08) Qatar Shipping Co (Dec-08) Barwa Real Estate Co. (Nov-08) Qatar Int’l Islamic bank (Nov-08) Qatar Insurance Co. (Nov-08) Qatar Telecom (Oct-08) Qatar Gas Transport Co. (Oct-08) Doha Bank (Aug-08) Qatar National Bank (Aug-08, Feb-09) QEWC (July-08) QISB (July-08) Masraf Al-Rayan (Jun-08) Commercial Bank of Qatar (Jun-08) Industries Qatar (May-08, Apr-09) Research Coverage Market Cap as % of total Market cap 95%

UAE Sorouh Real Estate PJSC (Feb-09) Gulf Cement Company (Jan-09) Abu Dhabi National Hotels (Dec-08) Dubai Investments (Dec-08) Arabtec Holding (Dec-08) Air Arabia ( Nov-08) Union Properties (Nov-08) Dubai Islamic bank (Oct-08) Aldar Properties (Sept-08, Feb-09) Union National Bank (Aug-08) Dubai Financial Market (July-08) Emaar Properties (July-08) Dana Gas (July-08) FGB (July-08) DP World (July-08) ADCB (Jun-08) Etisalat (Jun-08) NBAD (May-08, Feb-09) Research Coverage Market Cap as % of total Market cap 48%

Oman Galfar Engineering & Cont. (Nov-08) Oman Telecommunications (Sept-08) Bank Muscat(Sept-08) Oman cement (Sept-08) Raysut Cement Company (Aug-08) National Bank of Oman (Aug-08) OIB (July-08)


Egypt Commercial Int’l Bank (Oct-08) Orascom Telecom (Sep-08) Mobinil (Sep-08) Telecom Egypt (Aug-08) EFG-Hermes (Jun-08)


Jordan Arab Bank (Sept-08) Cairo Amman Bank (Oct-08) Research Coverage Market Cap as % of total Market cap 39%

Saudi Arabia Saudi Investment Bank (Jan-09) Savola Group (Dec-08) Kingdom Holding Co (Dec-08) Al Marai Company (Nov-08) Saudi Kayan Petro Co. (Aug-08) Al Rajhi Bank (Aug – 08) Arab National Bank (July-08) Saudi Telecom Co. (Jun-08, May-09) SAFCO (Jun-08) Banque Saudi Fransi (Jun-08) Riyad Bank (Jun-08) Samba Financial Group(May-08, Feb-

09) Sabic (May-08, Mar-09) Research Coverage Market Cap as % of total Market cap 60%

Company Research

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Documents

Saudi Arabia - Residential Real Estate Outlook (Jun 09)