Saudi Real Estate and Construction Sector_Samir

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)


Focus Logistics, agribusiness,minerals and constructionmaterial

Link www.pabmec.com

King Abdullah Economic City

(Under Development)


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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Documents

Saudi Real Estate and Construction Sector_Samir