By Andrew Torchia
JEDDAH, Saudi Arabia (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 on Wednesday.
“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 <4300.SE> 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.
(Reporting by Andrew Torchia; Editing by Tom Brown)