Housing in Saudi Arabia

1. Housing Opportunities & Challenges
17 Sep 2014

2. Agenda
1
1
The demand
2
Demographics
3
Household income distribution across KSA
4
Demand drivers
5
Supply developer share
6
Constraints on supply of affordable housing
7
Shortfall of affordable housing : Potential solutions
8
What more can we do …

3. The Demand

4. The housing demand driver
3
Source: Central Department of Statistics – 2013
•Current fertility rates of 3.3 suggest that this will continue, albeit at a reduced pace
•The Saudi population grew from 27.5m in 2010 to 30.7m in 2014, a CAGR of 3.04%
•Share of expatriates has increased from 31% to 33%
•Saudi Arabia has the youngest population in the GCC, with 42% (43% for Riyadh) of the population between the age of 20 -34
•urban migration, housing sizes and preferences trends are influenced by this young population
•
•Challenge of affordability acts to slow down the pace of reduction in average household size
•Saudi households shrinking but expatriates expanding as they secure permissions to include families
•The trend towards smaller family sizes driven by Saudi’s younger generation which see smaller families as better avenues to a better quality of life
Strong population growth
Overwhelmingly young population In millions
Falling household sizes
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
24.00
26.00
28.00
30.00
32.00
34.00
2010
2011
2012
2013
2014
2015
2016
Population
YoY Growth
60+
1
55 - 59
.5
50 - 54
.8
45 - 49
1.1
40 - 44
1.5
35 - 39
2.0
30 - 34
2.3
25 - 29
2.3
20 - 24
2.1
15 - 19
2.2
Marriage Age/First time home buyer group
Male
Female
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
4.4
4.6
4.8
5.0
5.2
5.4
5.6
-1.99%
Millions
Estimated
Forecast

5. Demographics
4
Source: Central Department of Statistics – 2013
•Population of Riyadh is 5.9 million out of 30 million in KSA
Riyadh Pop Vs. KSA
•2.5 million expatriates in Riyadh
•600,000 expatriate households in Riyadh
Riyadh - Saudi vs expat pop.
•Expatriates have much lower wages than Saudis
•Majority of expatriates are labourers or service workers
Riyadh - Saudi vs expat wages.
•Bottom income segment accounts for most of expatriate households
•Top four categories can be considered to be predominantly Saudi households
Total household income distribution (‘000)
20%
KSA
Riyadh
59%
Saudi
Expat
4,306
2,166
3,236
Avg
Saudi
Expat
24.2%
Working
High
Upper Middle
Middle
Lower Middle
125
122
210
186
378
38.8%
37.0%
To determine realistic market size, we need to include expatriate as financing has improved the expat access to the product.
80%
41%

6. Credit for real estate financing has showed a stable increase since 2009
5
Source: Saudi Arabian Monetary Agency
•Currently Saudi's Real estate consumer finance is only a mere 2% of total credit and less than 0.9% of GDP
•Credit for Real Estate financing has been on a steady increase since the onslaught of the credit crisis in 2008, with bank financing drying up (particularity among the international banks)
Real Estate Financing (Mortgages)
28,211
32,978
42,314
53,576
70,334
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2009
2010
2011
2012
2013
Consumer Loans (Real Estate Finance) (SR Million)
CAGR 25.6%

7. Following liquidity squeeze in 2009 on private sector and construction industry. Banks confidence in RE is improving since 2010
6
Source: Saudi Arabian Monetary Agency
•Banks financing to developers in the terms of debt and equity is improving
•Financing to construction sector has reduced slightly in Q4 2013 but still higher than the levels in 2012
Lending to construction sector
44,741
55,644
69,796
75,381
76,555
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2009
2010
2011
2012
2013
Bank Credit to Building and Construction Sector (SR Million)
CAGR 14.4%

8. Household income distribution across KSA
7
In comparison to other KSA regions, Riyadh has higher affordability
Income
Jeddah
Riyadh
Makkah
Madinah
Dammam
Overall
High Income
16,000 and above
10%
12%
6%
7%
10%
10%
Upper Middle
12,001-16,000
10%
12%
4%
14%
8%
10%
Middle Class
8,001-12,000
17%
21%
15%
31%
23%
19%
Lower Middle
5,001-8,000
13%
18%
16%
22%
22%
17%
Working Group
5,000 or less
50%
37%
58%
26%
37%
44%
Total
100%
100%
100%
100%
100%
100%
Income Groups and % of population for Major cities of KSA (includes both Saudi & Expatriate households)
30%
39%
31%
53%
45%
36%
Source: IPSOS Survey of 24 K Households in the KSA

9. Household income distribution across KSA
8
In comparison to other KSA regions, Riyadh has greater share in high income groups
Income
Jeddah
Riyadh
Makkah
Madinah
Dammam
Overall
High Income
16,000 and above
28%
46%
7%
7%
7%
100%
Upper Middle
12,001-16,000
24%
44%
5%
12%
5%
100%
Middle Class
8,001-12,000
22%
39%
9%
14%
8%
100%
Lower Middle
5,001-8,000
19%
39%
11%
12%
8%
100%
Working Group
5,000 or less
29%
31%
16%
5%
6%
100%
Total
25%
36%
12%
9%
7%
100%
Share of each City within each Income Group in KSA (includes both Saudi & Expatriate households)
Source: IPSOS Survey of 24 K Households in the KSA

10. Supply

11. Supply developer share
10
Source: JLL Analysis
•Saudi’s residential supply is dominated by smaller size players (the unorganized supply) who focus primarily on stand alone units with projects valued less than USD 5mn
•Although difficult to quantify (due to information limitations it is estimated that these smaller players account for nearly 85% of the current total supply in the KSA and in Riyadh
•As supply from larger sized projects are limited compared (and expected to remain low for the foreseeable future), substantive opportunities for new and existing professional developers to capture attractive market share
Riyadh housing supply
Riyadh Housing Units Supply Forecast 2009 -2015
Developer vs Unorganized Supply - Includes all unity types (Villas, Apartments & Public Housing)
JLL research indicates that Saudi’s Residential Supply is dominated by small unorganized players leaving attractive “market opening gap” for professional developers
Historic supply for housing units in KSA and Riyadh 2010-2014
Riyadh
KSA
2010 YE
857,000
4.64 million
3.04% CAGR of population between 2010-2014
2014 YE
1,000,000
5.99 million
2.56 CAGR of residential units between 2010-2014
Un-organized Supply
Active Developer Pipeline
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2009
2010
2011
2012
2013
2014
2015

12. Saudis have large households: Riyadh is a “villa city”
11
Key housing statistics for Riyadh
11%
31%
34%
19%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
East. Prov.
35%
9%
36%
1%
Madinah
9%
5%
49%
4%
Makkah
11%
7%
50%
2%
Riyadh
40%
22%
25%
2%
Other
Apt
Flr in a villa
Villa
House
•Riyadh and the Eastern Province have the highest preference for villas at 40% and 35% of total accommodations
•As compared to the national average of 33%, Saudi nationals in Makkah & Madina have higher performances (50%) for apartments
•2 and 3 bedroom units account for 54% of the housing in Riyadh, even though the average household size is about 5.0 people (excluding the laborer population)
Saudi nationals breakdown by accommodation type
Riyadh housing stock breakdown by number of bedrooms (Saudis & Expats)
Source: HSBC Equity Research
0%
5%
10%
15%
20%
25%
30%
1 BR
2 BR
3 BR
4 BR
5 BR
6 BR
7 BR

13. How to Take The Vision Forward!

14. Constraints on supply of affordable housing
Affordable housing
13
Construction
technology
Social/Cultural
Land and infrastructure cost
Developer business model
Permits and approvals
Financing for developers
Management/ price control
Mortgages

15. Can professional housing delivery increase market supply?
14
•Large scale development sites in new suburban areas
•System building
•New investors (e.g. REIFs) looking to invest in resi sector
•New developers entering the market
•PPP
Supply side opportunities
•Little experience among local players
•Few capable contractors for large projects
•Scarcity of credit
•Escrow laws
•Permits and Approvals
•Delivery of services
•Low transparency on land registry
Barriers to entry
•Growing population
•Declining household size
•Young population / changing tastes
•Growing middle class
•New mortgage law
•Low financing rates
Demand enablers
•Saudis wary of off plan purchases
•Cost/Affordability
•Acceptance off plan sales
•Diverse design requirements
•Cultural acceptance of community developments
•Accommodation alternatives: rentals, parents
•New laws of higher down payments for real estate financing
Demand inhibitors

16. Shortfall of affordable housing- Potential Solutions
Affordable housing
15
Address social issues
Small block sizes
Reducing infrastructure cost
P. P. P. Arrangements
Increase access to finance
Improve the national registration system
Use of system building solutions
Access to raw lands
Innovative design solutions

17. What more can we do …
16
Relaxation of development guidelines – Welcome Creativity
Designate the permitted use of land - Update the urban plan to include new areas
Expedite Setting up Investment and Funding Structures dedicated to the housing market
Increase the density of housing units in a given area along with the associated infrastructure
Release Raw land to private developers with basic infrastructure by expanding urbanization

18. Conclusions
17
Shortage of affordable housing in all major KSA markets
Current shortfall (over 1.0 million units) will increase over next 5 years-200+ units are needed annually
More active government intervention & support is essential to ensure sufficient supply
Requires range of new business models/JV’s between Government and Private sector
It requires a re-think of the traditional approach to development
The greatest opportunity facing the development industry in KSA over next 5 years