Interview: Bader Al Saedan
With lower public spending and a doubling in office space expected, can commercial developments continue to attract investment?
BADER AL SAEDAN: Most developers are moving to commercial developments and we are expecting a lot of business in the near future in the city of Riyadh. We will see companies demanding office spaces, but not all companies will move to the King Abdullah Financial District, which only targets “AAA” companies, due to expensive rents. Most companies will look for new, more affordable office space elsewhere in the city, as there remains strong demand and limited supply for B- and C-level office space. Retail space is also highly sought-after at the moment and, therefore, attractive to developers. There is constant high demand for food businesses, as that constitutes a large part of the city’s entertainment. Malls are turning into weekend destinations and this is creating a strong demand for new large development projects.
What is the expected impact of the so-called white land tax on the real estate sector?
AL SAEDAN: Taxes are not the only solution in some instances. To solve the problem, we have to diagnose the market in aggregate. People are looking for places to invest, but the choices are limited. Small and medium-sized enterprises are not well supported by regulation in Saudi. At the moment, businesses invest either in the stock market or in real estate, with the former quite volatile and risky, hence the real estate market receives most of the cash. We need better regulations to support people by giving them better opportunities to invest their money outside of these two traditionally dominant areas. This would help them redirect money that would otherwise go to stock markets and real estate into creating their own businesses or investing in industrial projects. The real estate sector is supported by genuine demand for housing within Saudi, with foreigners not allowed to invest in real estate. Still, prices are higher than they should be. The Kingdom has a rapidly growing and very young population, which increases demand for development projects.
In what ways can the government incentivise private developers to address the affordable housing deficit in the Kingdom?
AL SAEDAN: The Ministry of Housing has been very involved with this question and the answer could lie in easing regulations. This would not cost anything on the government’s side and would drive more investment and efficiency from the private sector.
Another part of the answer is broadening the choice of cities for Saudis to live in. The concept of economic cities has been well received in the Kingdom. The government should continue to develop small cities in various regions of the country to spread out the population. This is an additional tool to decrease pressure on housing prices in large cities.
How important is the transition from low-density housing to a more sustainable housing model?
AL SAEDAN: The World Bank found that Riyadh is a low-density city compared to many similar-sized cities across the world. Increasing the density of the city can help address the issue of affordable housing in the Kingdom. This will require increasing infrastructure, in particular public transport, so that the city can cope with high-density residential areas. Moreover, the culture in Saudi must change so that the middle class is comfortable with moving into a smaller first home and gradually reaching the larger house needed to raise a growing family. Expectations need to be adjusted. A growing population makes it difficult to maintain high expectations for large homes at an affordable price. The government therefore needs to forge more partnerships with the private sector in order to increase the standard of living for its citizens.
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