Saudi woos foreign firms to build 1.5 mn housing units

JEDDAH / Reuters

Saudi Arabia will offer foreign and local property developers partnership deals in a vast housing construction programme that aims to build 1.5 million homes over the next seven or eight years, the housing minister said.
“We are preparing five or six types of partnership between the ministry and the developer,” Majed al-Hogail told a news conference on the kingdom’s economic reform plans.
“The developer would be an investor, bearing risk and designing products in line with market demand,” he said. The ministry would support projects by providing information and help to arrange
financing.
A shortage of affordable housing for a young and growing population of about 21 million citizens is one of Saudi Arabia’s biggest social and economic problems.
In the past, the government earmarked billions of dollars of state money to build homes. But bureaucracy and difficulties obtaining land kept the pace of construction agonisingly slow, and the plunge of oil prices in the past two years means the government no longer has ample funds to throw at the problem.
So Saudi Arabia is now adopting a different approach, seeking to persuade private investors to design and build housing while the ministry largely acts as a regulator.
“We want to catalyse the private sector, to be a partner with it — we want them to play the prime role,” Hogail said.
Major Saudi property developer Dar Al Arkan said this week that it was in talks with the ministry on a partnership to build housing, fuelling a leap of more than 20 percent in its share price over two days. But Hogail said Saudi Arabia was also keen to persuade foreign developers to participate because they could provide expertise and more diverse projects. Last month, the government authorised the ministry to seek the assistance of Britain, France and China in the construction programme.
If the programme succeeds, it could give the kingdom a badly needed source of economic growth to offset the slump in oil prices. The reform plans aim to double the real estate sector’s contribution to gross domestic product to 10 percent by 2020.
The government hopes to stimulate the industry by cutting red tape; the average time required to approve and license new residential real estate projects is to shrink to 60 days by 2020 from 730 days.
But the ministry will also allocate about 59 billion riyals ($15.7 billion) over the next five years to a loan guarantee programme and other schemes that provide financing to home buyers and real estate developers. The state’s Real Estate Development Fund, which currently finances about 190 billion riyals of projects, aims to raise money for its operations by issuing sukuk (Islamic bonds), though the first issue is unlikely to occur before the end of 2017 because of tight liquidity in money markets, Hogail said.
The government also plans to move more aggressively to deter hoarding of land and force plots out into the market where they can be bought and developed, increasing supply of homes and bringing down prices.
Authorities will “encourage” the kingdom’s big landowners to involve themselves in income-generating residential development projects, and Hogail said details of a tax on undeveloped urban land would be released within two weeks.

KSA to issue white land tax
regulations in two weeks

Bloomberg

Saudi Arabia, which imposed a controversial tax on empty land plots littering its cities, will issue regulations detailing the law’s planned implementation within the next two weeks, the housing minister said.
“The land fees are almost completed now, all of the elements were studied by all of the relevant agencies,” Majed Al Hogail said at a press conference in Jeddah, where officials are presenting a plan to overhaul the nation’s economy by 2020. “Now it is ready, I expect during the coming two weeks it will be announced in a final way.”
One of King Salman’s first acts as ruler was to impose a 2.5 percent annual tax on the value of urban land that’s not being developed by its owners, known locally as white land. The regulations will outline which plots will be subject to the tax and the time frame for implementation.
The tax is designed to tackle a severe housing shortage, which the government estimates at around 1.5 million homes over the next seven years. Home development in the kingdom lagged as landowners preferred to speculate on rising land values.
The levy will likely be applied in five stages, starting with plots larger than 500,000 square meters at first. It will eventually include plots as small as 10,000 square meters, Al-Riyadh newspaper reported in May, citing a draft it has seen. The newspaper said landowners will have 6 months to get their documents in order.
The housing ministry has signed deals with foreign developers to build homes and private companies will be offered five to seven types of partnerships in which they can partake, the minister said. He declined to comment on how much revenue the tax will generate.
The housing ministry may issue Islamic bonds to help fund the country’s Real Estate Development Fund at the end of 2017, the minister said. There are no plans to issue bonds this year, he said.