Saudi Arabia: Real Estate Update - · PDF fileSaudi Arabia: Real Estate Update 1. Executive...

Kuwait Financial Centre “Markaz” REAL ESTATE RESEARCH

Saudi Arabia: Real Estate Update

1. Executive Summary

• The Kingdom of Saudi Arabia’s real estate and construction sector continued to report a strong performance in 2007, led by the positive economic environment resulting from high oil prices, a favorable investment climate, and abundant liquidity. Total real estate investments more than doubled to 115.9% in 2007 over 2006.

• Investment in the Saudi real estate sector has been

propelled by low to negative real interest rates. The low-negative real interest rates created demand for properties, thereby pushing asset prices higher, particularly real estate.

• The new foreign ownership law entitles resident non-Saudis

to own real estate for their private residence with the permission of the Interior Ministry. This law has led to increased foreign interest in the Saudi property market.

• In the residential sub-segment demand-supply dynamics

indicate an annual requirement of more than 190,000 units over next seven years. On the supply side, around 140,000 housing units a year are expected to be built by 2015.

• The much awaited mortgage law passed the Shura Council

during 2008 is likely to unlock significant housing demand in the Kingdom’s real estate market. The new mortgage law, which is awaiting approval of the council of ministers, is likely to sail through, given the government’s efforts to highlight its importance in helping fight inflation.

• Residential yields in the Kingdom remain high (9%) due to

lower residential sales prices compared to other regional markets. Residential yields offer scope for compression as the trend shifts towards ownership from rentals.

• The concept of timeshare is likely to gain increasing traction

in Mecca and Medina due to the potential of these cities to develop into major religious tourist destinations.

• The Kingdom’s office sub-segment continued to remain

buoyant due to the increased demand for office space from newly companies as well as existing ones. Majority of the buildings in the CBD enjoyed occupancy levels of close to 100% in 2007. Office sub-segment to continue witnessing an undersupply situation at least in the short term.

September 2008 Research Highlights: Examining the trends and developments concerning the real estate sector in Saudi Arabia

MENA Real Estate Team

com.markaz@realestateteam

Kuwait Financial Centre “Markaz” P.O. Box 23444, Safat 13095, Kuwait Tel: +965 224 8000 Fax: +965 242 5828 markaz.com

REAL ESTATE RESEARCH September 2008

Kuwait Financial Centre “Markaz”

2

• Office rentals in Riyadh continue to be lower compared to other cities in GCC countries. Average office rentals in Riyadh stood at USD320 per sqm compare to average USD691 per sqm for the GCC region.

• Retail sub-segment continued to witness the trend shift

towards development large malls. Total retail space in the Kingdom is expected to reach 6.95 Million sqm of GLA by the end of 2010, an increase of 29% over 2007.

• Religious tourism continued to drive the hospitality industry.

While hotel occupancy rates in Jeddah increased by 14% y-o-y in 2007, in Riyadh, it rose by a marginal 1% y-o-y. Average room rates (ARR) have grown by 20% y-o-y in Jeddah and 42% y-o-y in Riyadh during 2007.

• Industrial and infrastructure sub-segment continued to

benefit from the government’s decision to further open up the sector to foreign investments and provide other incentives through establishment of economic cities. (Refer appendix2 for economic cities).

• The downside risks to growth in the Kingdom’s real estate

sector are a fall in oil prices, delay in implementation of the mortgage law, lack of transparency, inflation, and expected high leverage levels.



3

2. Saudi Arabia Real Estate sector—Economic drivers: congenial investment climate… Saudi Arabia’s real estate and construction sector continued to gain strength from overall economic expansion (led by historically high oil prices) and structural reforms initiated by the government during the last five years. The government continued to kindle impressive economic reforms in an effort to improve investment climate and liberalize the economy. A major step in this direction was the Kingdom’s accession to the WTO. Furthermore, corporate tax on foreign-owned firms was reduced from 45% to 20%. The improved investment climate in the Kingdom is reflected in the ever growing inflow of Foreign Direct Investment (FDI). Total FDI flow into the Kingdom has increased six-fold between 2004 and 2006 to reach USD18.3 Billion in 2006. In 2007, World Bank recognized Saudi Arabia as one of the world’s top reformers according to its Doing Business 2008 report. The country ranked 23rd out of 178 countries according to the World Bank ease of doing business index. The economy has also benefited from the government’s vision to diversify the economy from oil by 2025. To that end, power and telecommunications are among the key sectors that have been identified for diversifying the country’s sources of income. The government has been looking to attract USD300 Billion of investment in energy-intensive industries over the next 13 years. Exhibit 1: Saudi macro economic indicators (2002-20071)

2002 2003 2004 2005 2006 2007 1

Total nominal GDP USD (Billion) 188.8 214.9 250.7 315.8 349.1 376.0Total nominal GDP SAR (Billion) 707.1 804.7 938.8 1,182.5 1,335.6 1,430.5Nominal GDP growth rate (%) 3.0% 13.8% 16.7% 26.0% 12.9% 7.1%Total real GDP SAR (Billion) 637.2 686.0 722.2 762.3 786.3 813.0Real GDP growth rate (%) 0.1% 7.7% 5.3% 5.6% 3.1% 3.4%Inflation average (CPI) (%) 0.2% 0.6% 0.3% 0.7% 2.2% 4.1%Population (Million) 21.5 22.0 22.7 23.1 23.7 24.3Per capita GDP at current price (USD) 8,785 9,758 11,127 13,658 14,733 15,481Interest rate on 1 year Riyal deposit 2.81% 1.95% 2.32% 4.17% 5.28% 4.86%Money supply (M2) SAR (Billion) 310.0 336.4 408.0 448.8 538.8 666.6 Source: SAMA The Kingdom’s economy has also benefited from prudent fiscal discipline and effective resource allocation for infrastructure projects. Saudi Arabia’s real GDP growth has averaged 4.3% since 2003, relative to 0.1% at the end of 2002. The construction sector in Saudi Arabia has expanded at 6% CAGR for 2004-06. Contribution of construction sector as a percentage of GDP has moved up from 6.7% to 7.6% during the same period. Investment in the Saudi real estate sector has also been propelled by low to negative real interest rates. The US, in the wake of the credit crunch has repeatedly cut interest rates to prevent the economy from slipping into recession. Given the fixed peg of the Saudi Riyal to the US Dollar, Saudi Arabian Monetary Agency (SAMA) has been forced to cut repo rates. Consequently, despite inflation reaching its peak of 10.5% (in April 2008), SAMA cut the repo rate from 4.7% to 2.5% during 2008. The low-negative real interest rates created demand for real estate properties, pushing asset prices higher, particularly real estate prices.

Saudi real estate sector continued to benefit from impressive economic reforms Low to negative real interest rate propelled investments in Saudi real estate sector



4

Going forward, we believe the strong economic performance will likely continue, led by high oil prices. Furthermore, economic diversification and a more attractive investment environment are likely to strengthen the economy. Added to that, the Kingdom’s commitment to privatization and revamping of urban infrastructure enhances the country’s economic outlook. Consequently, we expect the real estate and construction sector to continue benefiting from the Kingdom’s positive economic outlook at least in the medium term.

3. Saudi Arabia real estate sector: Overview, Drivers,

and Financing (I) Overview: Past and current performance of the sector

Since 2004, the Saudi real estate sector has experienced significant growth, driven largely by a positive economic environment created by high oil prices, favorable demographics, and abundant liquidity. The Kingdom’s real estate sector continued its strong performance in 2007. This could be gauged from the fact that value of total investments in Kingdom’s real estate projects more than doubled in 2007 (annual growth of 115.9%). According to Business Intelligence-Middle East, total investments stood at SAR100.4 Billion in 2007 as compared with SAR46.5 Billion in 2006. Building permits, another indicator of a boom in the real estate and construction sector, reported 8.6% CAGR over the period 2000-06. However, building permits issued during 2007 reported a sharp year-on-year (y-o-y) decline of 32.8% in 2007 (Refer exhibit 2). This could be attributed to the increase in the size of permits issued and large bases of 2005 and 2006 coupled with correction of stock market in 2006. The Residential segment continued to account for majority (88%) of the total permits issued. However, the share of Commercial and Industrial permits as well as Other permits has been increasing over the years. Of the total permits issued, Commercial and Industrial permits and Other permits accounted for 6.7% and 5.3%, respectively, in 2007, as against 5.5% and 2.5% in 2000. Exhibit 2: Building permits by type (2002-2007)

Building Permits 2002 2003 2004 2005 2006 2007Residential 40,022 34,136 39,803 49,266 48,021 31,896Commercial & Industrial 2,547 2,133 3,043 3,494 3,093 2,416Other 1,165 1,316 1,875 2,609 2,742 1,902Total 43,734 37,585 44,721 55,369 53,856 36,214 Source: Ministry of Economy and Planning (II) Overall Demand drivers: Positive drivers:

• Continued economic prosperity led by high oil prices coupled

with economic reforms such as accession to the WTO, reduction of corporate taxes and improvement in investment climate.

• Low to negative real interest rates due to repo rate cuts, in

line with rate cuts by the US Fed, created demand for real estate properties.

Real estate investments more than doubled to 115.9% in 2007 over 2006 Residential segment continued to account for majority (88%) of the total permits issued



5

• Increasing availability of housing finance due to the eminent introduction of the new mortgage law and growth in government financing through Real Estate Development Fund (REDF) on account of rising housing demand.

• Increasing encouragement to private sector to cater to the

strong demand and growing infrastructure development needs of the Kingdom. As per the 8th Development Plan (2005–2009), 1Million units are planned to be completed, of which the private sector is estimated to self finance the construction of 800,000 units.

• Stable political scenario with King Abdullah bin Abdel-Aziz al-

Saud retaining the ultimate executive authority. A stable political environment will improve investor sentiment and increase foreign investment in the Saudi real estate sector.

• Approximately USD472.8 Billion worth of mega projects are

scheduled to come up across Saudi Arabia over the next few years. These projects are expected to create more jobs, both temporary and permanent. This, in turn, would attract more expatriates into the country, propelling demand in the real estate sector.

(III) Recent regulations/government actions in the sector: New

ownership law to encourage non-Saudi investments… Real estate ownership laws in the Kingdom are still not as friendly

towards foreign investors as they are in other GCC countries such as Bahrain and the UAE. However, to encourage non-Saudi Investments in the Kingdom, the government passed a new Real Estate Law in 2000, allowing resident non-Saudis to own real estate for their private residence with the permission of the Interior Ministry. It allows ownership of real estate by foreign investors to conduct business activities and for their accommodation and that of their employees.

The law also states that non-Saudis have to invest at least SAR30 Million to be eligible for receiving the license for purchasing land and buildings. Furthermore, buyers cannot resell the property for five years from the date of purchase. This law also prevents foreigners from owning properties in the holy cities of Mecca and Medina, except through inheritance and endowments. Renting within the two cities is, however, permitted, but for not more than two years..

(IV) Real Estate financing:

(A) State of government financing (REDF): The private sector and commercial banks continued to account for majority (75%) of the funding in the housing segment. The government sponsored financing under the Real Estate Development Fund (REDF), which has a zero interest rate policy, accounted for a minority share. The low level of financing for housing until now could be mainly attributed to the absence of a mortgage law. However, the Kingdom is witnessing a shift towards increased REDF financing. Loan disbursement under REDF expanded at a CAGR of 8.1% in 2001-2007 to reach SAR3.6 Billion in 2007 (Refer exhibit 3). However, y-o-y, total REDF loans disbursed declined 10.1% in 2007. This was primarily due to the large base of 2006, in which loan disbursed had increased 57.6% y-o-y. Going forward, we expect the new mortgage law to enable a better collection

The new ownership law allows resident non-Saudis to own real estate for their private residence Private sector and commercial banks continue to account for majority of the housing finance



6

system and enhance the operational efficiency of REDF. This, in turn, would encourage REDF to fund more housing projects, in our view. Exhibit 3: REDF loan disbursement (2001-2007)

5001,0001,5002,0002,5003,0003,5004,0004,500

2001 2002 2003 2004 2005 2006 2007

SAR

(M

illio

n)

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

Loan disbursements % growth

Source: SAMA (B) State of Commercial Bank Credit Facilities: As mentioned in our last report, bank financing to the real estate sector has traditionally been hampered by the absence of a mortgage law. This resulted in total credit issued to the building and construction segment remaining at a low 7% during the last 3-4 years. However, with the introduction of a new mortgage law in 2008, many companies waiting on the sidelines have entered this lucrative segment. As a result, total bank credit to the building and construction sector continued to grow in 2007, increasing by 14.7% y-o-y to reach SAR43.4 Billion. (C) Mortgage financing: New law to unlock significant demand… The new mortgage law has been approved by the Shura council, and is pending clearance by the council of ministers. We believe that the council of ministers will likely give their approval, given the government has repeatedly highlighted the importance of this law in helping its rein in inflation. The law also aims at encouraging housing for the low- and middle-income groups by allowing banks to offer subsidized loans for the purchase of houses. In an emerging market context, the mortgage market in Saudi Arabia is still in its infancy. Penetration of mortgage financing as a percentage of GDP was as low as 1% compared to 15% in Bahrain, 8% in Qatar, and 5% in UAE (Refer exhibit 4) Nevertheless, Saudi Arabia’s booming real estate market reflects the huge mortgage financing opportunity in the country. We believe the new mortgage law will unlock significant demand in the Saudi real estate market, going forward.

New mortgage law to enhance operational efficiency of REDF New mortgage law would allow banks to offer subsidized loans to low- and middle-income groups for the purchase of houses



7

Exhibit 4: Mortgage as a % of GDP (Saudi Arabia Vs Other GCC markets

0.0%

2.0%4.0%

6.0%

8.0%

10.0%12.0%

14.0%

16.0%

Saudi Arabia UAE Kuwait Qatar Bahrain

Mo

rtag

e to

GD

P (%

)

Source: Respective Central Banks, EuroStat, HSBC

4. Segments of real estate market in Saudi Arabia: (I) Housing/residential segment:

• Residential segment continues to account for majority (70%) of the real estate market with the share of apartments increasing from 32.7% in 2004 to 37% in 2006.

• Demand for residential units surged significantly in the last

few years due to: a) rising national and expatriate population; b) favorable demographics; and c) greater availability of housing and mortgage finance.

• Demand-supply dynamics point towards an undersupply

scenario, at least in the medium term. The Kingdom would require 190,000 units annually over the next seven years. On the supply side, about 140,000 housing units are expected to be built each year until 2015.

• Residential yields in the Kingdom remain high (9%) and

offer scope for compression due to low residential sales prices compared to other regional markets.

• Concept of timeshare is likely to find greater favor in the city

of Mecca and Medina due to the high potential of religious tourism.

(I) Structure: Apartments continue to dominate the market… The residential segment continues to dominate the Saudi real estate market, accounting for around 70% of the total real estate market activity. The apartment market’s share increased from 32.7% in 2004 to 37% in 2006 (Refer exhibit 5). Mecca continues to dominate the segment, given its religious tourism potential. Riyadh, in contrast, has a greater balance between apartments and villas. Going forward, we expect the share of apartments in total housing to rise, led by the increasing demand from the low income segment.

Mortgage market in Saudi Arabia is still in its infancy Residential segment continues to account for majority of the real estate market



8

Exhibit 5: Housing occupancy by type (2006)

Others, 6.10%

Villas, 21.20%

Duplex, 9.10%

Traditional houses, 26.6%

Apartments, 37.0%

Source: KSA Department of Statistics Positive drivers:

• Saudi Arabia’s total population expanded at a CAGR of 2.5% in 2002-2007 (Refer exhibit 6). The number of expatriates, accounting for 27% of the total population, increased at a CAGR of 2.4% during the same period. This growth rate is sustainable with the Kingdom’s population expected to reach 28.6 Million by 2013.

• Demographic trends support the rising demand for housing.

Approximately 38% of all Saudis are below the age of 15.

• Gradual shift towards western style of smaller (nuclear) families will lead to the decline in average family size, in our view. This, in turn, would increase the demand for housing.

• Rising affordability levels and increasing number of

households led by improved economic conditions, especially among the Saudi middle-class.

• Implementation of the new mortgage law, coupled with

increasing financing facilities from specialized institutions such as REDF, to ensure availability of housing finance in the Kingdom.

(II) Demand-Supply: Led by rapid growth in the local and expatriate population, demand for housing units currently outstrips supply. Based on our analysis of demand-supply dynamics in Saudi Arabia, we estimate incremental demand of over 1.5 Million housing units by 2015. This represents an annual requirement of more than 190,000 units over the next seven years. On the supply front, approximately, 140,000 housing units are expected be built annually by 2015, indicating a 27% supply gap until 2015. The residential housing construction sector in the Kingdom is estimated to require an investment of nearly SAR1.0 Trillion to construct 2.32 million new housing units between 2005 and 2020. In order to meet the significant demand for housing units, government plans to develop 1 Million housing units by 2015. The government’s development plan encompasses 280 Million sqm of residential land plots to be provided in

Demographic trends support increased demand for housing. Kingdom will require on average 190,000 housing units annually over next seven years



9

urban areas and the private sector constructing about 875,000 residential units (of which 225,000 units will be supported by the Government). Exhibit 6: Saudi Population (2002-2007) Year 2002 2003 2004 2005 2006 2007Saudi Population 15.7 16.1 16.5 16.9 17.3 17.7% growth 2.4% 2.5% 2.9% 2.0% 2.5% 2.5%Expatriate population 5.8 6.0 6.1 6.3 6.4 6.6% growth 2.5% 2.4% 3.0% 2.0% 2.4% 2.3%Total 21.5 22.0 22.7 23.1 23.7 24.3% growth 2.5% 2.3% 3.2% 1.8% 2.6% 2.5%

Source: Central Department of Statistics & Ministry of Planning We expect demand from the top four provinces—Mecca, Riyadh, Medina, and Eastern Provinces—to account for approximately 90% of the total incremental demand. Saudi Arabia when compared with developed economies in terms of home ownership is at a nascent stage of development, with 45% of total households and less than 10% of the overall population owning homes. Percentage of total households owning their own home in developed markets roughly stands at around 70%. Added to that, introduction of the new mortgage law will unlock significant demand for housing units at least until 2015, in our view. (III) Riyadh residential market: Demand-supply points towards shortage, yields are high… Riyadh is among the major residential markets in the Kingdom, as the province accounts for nearly 23% of Saudi Arabia’s total population. Furthermore, Riyadh, along with Mecca, has over 50% of the total number of housing units. The residential sector in Riyadh has experienced a period of sustained growth in demand, driven by rapid increases in population and growing speculative interest in the market. On the other hand, the supply of housing units has failed to keep pace with population growth. Although housing supply has increased considerably in the last few years, the capital city still faces shortage of housing units (primarily in affordable middle and low-income segment) due to the pile-up of unmet demand. This can be gauged from the fact that annual residential occupancy stood at 92% during 2007. Demand for housing units in Riyadh is estimated to reach 270,000 by 2015. Prices and rentals across Riyadh have spiraled during the last few years, led by strong demand and growing speculative interest in the market. According to SAMBA, while prices increased at 9% per annum, rentals have risen by 15% over the period 2002-2006. Consequently, rental yields in prime locations of the city are relatively high compared to some of the GCC countries. Rental yield in Riyadh vary from 6-9.5% compared to Dubai (7.3%), Abu Dhabi (7.7%), Kuwait (9%) and Bahrain (10.0%). (Refer exhibit 7). However, given the strong demand for housing units, we expect residential prices in Riyadh to remain on an upward curve, at least in the medium term. This, in turn, will apply downward pressure on yields, providing investors with the opportunity to benefit from capital appreciation.

Mecca, Riyadh, Medina and Eastern Provinces will account for approximately 90% of the total incremental demand. Residential occupancy in Riyadh stood at 92% in 2007



10

Exhibit 7: Residential yield in Riyadh (2007)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

ALGHADEER

ALMOROUJ

KING FAHD OLAYA ALTAAWON

ALRABEIYA

Re

side

ntia

l yie

ld

Source: Colliers International

(IV) Price and rentals: Prices and rentals of residential properties in the Kingdom have appreciated significantly over the last five years due to scarcity of land, coupled with higher demand, and a certain degree of speculative buying. For the period 2002-05, average land prices rose by 16.5% per annum and residential prices by 9% per annum. The price continued to witness upward trend with average land price registering a growth of 20-40% during 2006. In tandem with soaring prices, rentals of residential properties have risen by 15% per annum over the period 2002-2006. Residential yield versus GDP per capita: scope for yield compression… In exhibit 8, we compare rental yields and GDP per capita across 15 markets. Rental yields tend to decline as income levels improve. This is primarily due to the increased ability of the population to purchase real estate rather than rent. The Kingdom has relatively high rental yields (9%). However, with rising incomes levels more individuals are moving towards purchasing instead of renting homes, putting pressure on yields. Furthermore, residential yields in the Kingdom remain high due to lower residential sales prices compared to other regional markets. Going forward, introduction of new mortgage law is likely to trigger greater demand for ownership of homes compared to rentals. This will drive prices higher, which, in turn, will apply pressure on rental yields in the medium to long term. Exhibit 8: Residential rental yields versus GDP per capita (USD)

Source: Global Property Guide, Markaz Analysis

Egypt

Jordan

China

Saudi Arabia

Lebanon Dubai

Bahrain

United StatesMorocco

India

Abu Dhabi

FranceJapan United Kingdom

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

GDP per capita (USD)

Re

sid

en

tial

re

nta

l yie

lds

Scope for yield compression in Saudi Arabia as income level improves

Saudi Arabia has relatively high residential rental yields (9%). With rising incomes and more individuals opting to own property, land prices are likely to rise, thereby applying pressure on yields New mortgage law to trigger greater demand for ownership of homes compared to rentals



11

(V) Time Sharing: Gaining foothold in the Kingdom’s property market… The concept of timeshare is gaining in popularity in the Kingdom’s property market. Time share gives an individual the right to use an apartment or a condominium unit for a specified period of time each year. Timeshare schemes are generally designed in compliance with Islamic laws. Currently, the two major timeshare projects in Saudi Arabia are Zamzam Tower and Caravan Towers in Mecca. We believe the concept of timeshare is likely to gain increasing footholds in the city of Mecca and Medina due to the potential of these places to grow as tourist destinations. (VI) Outlook: We remain optimistic of the Kingdom’s residential segment, as we continue to believe that Saudi Arabia’s residential real estate market is likely to be characterized by an undersupply situation, at least in the medium term. Consequently, we expect residential prices and rentals in Saudi Arabia to continue to increase in the medium term (3-4 years). Also, further deregulation of the sector, expansion of the mortgage market, and the rising cost of construction are bound to keep pushing prices higher. In the long term (5 years and above), we expect prices and rentals in the residential sector to stabilize or increase moderately as supply catches up with demand. (II) Commercial segment: (A) Office sub-segment:

• Office sub-segment continued to witness a flurry of activity due to increased demand from newly established companies as well as existing companies.

• New regulation, which prohibits converting of residential

villas in to commercial offices, is likely to increase the demand for purpose built office space.

• Office sub-segment continues to witness shortage with

occupancy levels in CBD close to 100% in 2007.

• Although, rentals have increased significantly during the last five years, it remains low in absolute terms and yields are high when compared to other countries in the GCC region.

• Expected undersupply situation, coupled with increasing

cost of land, infrastructure and construction, would continue to drive rentals north in the short term.

Timeshare is likely to gain foothold in the cities of Mecca and Medina due to their huge potential as tourist destinations Residential prices and rentals in Saudi Arabia to maintain upward momentum in the medium term



12

Activity in Saudi Arabia’s office sub-segment continued to be buoyant due to increased demand for office space as new companies set up operations and existing ones expand. Facilitating this demand growth has been the opening up of the Saudi economy and new foreign investment friendly laws. The influx of foreign companies has continued to drive the demand for Grade A office space in the Kingdom. New regulation driving demand for purpose-built office space… Historically, residential villas were used as commercial office space in the Kingdom. However, the government issued a new legislation prohibiting the conversion of residential villas into commercial offices in 2005. This has further increased the demand for purpose built office space. Going forward, we expect the market for purpose-built office space in secondary CBD areas to strengthen as more companies move their offices from residential to commercial areas. Demand-Supply: Market to witness shortage in near-term… Historically, the office sub-segment in Saudi Arabia is characterized by weak demand and a declining tenant base. However, the office sub-segment has seen a notable shift in demand-supply dynamics over the last few years. As mentioned above, this was primarily led by growing demand for office space from newly established companies and the expansion activities of existing ones in light of economic growth and an improved investment climate. Strong demand for office space was evident from the fact that majority of the buildings in the CBD enjoyed occupancy levels of close to 100% in 2007. Supply, however, has remained well short of demand, leading to a shortage of quality office space in the Kingdom. Colliers International expects approximately 400,000 sqm of incremental supply to come into the market over the next few years. Majority of these supplies will be ready for occupation in 2009. Consequently, we expect the office sub-segment to witness shortage at least in the short term. Prices and rentals: Rents and prices in the Office segment have increased significantly due to the shortage in supply of office space and rising construction cost. While prices have increased by 12%, rentals have grown by an average of 15% during the last five years. As a result, yields have compressed from around 10% in 2000 to 7% now. However, office rentals in Saudi Arabia still remain low in absolute terms when compared to other countries in the GCC region (Refer exhibit 9). According to Colliers International, rentals for class A office space were in the USD250-300/sqm range. Rentals for class B office space were USD200/sqm, while that for class C office space were in the USD100-150/sqm range.

New regulation prohibits converting of residential villas into commercial offices Office sub-segment to witness shortage in the short term



13

Exhibit 9: Office rentals and yields across major cities in GCC (2007)

Source: Colliers International, DTZ

Drivers of the office segment Positive drivers:

• Strong economic growth, primarily due to economic reforms, has created the atmosphere for a strong business environment.

• The creation of economic cities would position Saudi Arabia

competitively vis-à-vis other players in the region as well as globally. The concept of economic cities would trigger opportunities for many ancillary industries as well apart from real estate.

• Saudi Arabia’s accession to WTO would create a more

conducive environment for doing business in the country. This would attract more foreign companies across different sectors of the Kingdom, driving demand for office space.

Outlook for the office sub-segment: We expect the office sub-segment in the Kingdom to continue witnessing an undersupply situation, at least in the short term. This, coupled with increasing cost of land, infrastructure and construction, would continue to drive rentals northward in the short term. However, prices and rentals are expected to stabilize or increase moderately in the medium- to long-term.

(B) Retail sub-segment:

• The trend towards development of large malls continued during 2007 with the opening of the Swaidi and Panorama malls which together released 180,000 sqm of GLA.

• Several new retail developments are scheduled for

completion by 2010 to absorb the demand from retailers.

Concept of economic cities would trigger opportunities for many ancillary industries Office rentals to remain northbound in the short term

0100200300400500600700800900

Dubai Abu Dhabi Kuwait Doha Riyadh Manama

USD

/sqm

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

Rentals Yield (%)



14

• Total retail space in the Kingdom is expected to reach 6.95 Million sqm of GLA by the end of 2010, with GLA per capita to grow to 0.5-0.6 per sqm for Riyadh and Jeddah. Majority of this retail space is likely to enter the market at the end of 2010.

• Retail rentals to remain on an upward trajectory at least in

the short term due to rapid absorption of new supply led by the rising purchasing power of consumers.

During the last two years, demand for retail space in the Kingdom has increased significantly. This growth in demand for retail space was triggered by factors such as change in population spending habits, higher disposable income and favorable demographic trends leading to excessive demand from retailers for commercial space. Demand in the Saudi retail market remained buoyant during 2007 and until July 2008, led by growing purchasing power fuelling retail consumption. The trend towards development of large malls continued during 2007 with the opening of the Swaidi and Panorama malls, which together released 180,000 sqm of GLA. Several new retail developments are scheduled for completion by 2010 to absorb the demand from retailers. The year 2010 will mark the opening of Benaa City mall, which is being developed by Benaa al-Kawaed Real Estate Development Company. The mall, will offer 300,000 sqm of leasable space with more than 2,000 retail outlets. Demand-supply dynamics: As mentioned above, improved purchasing power of the consumer, coupled with growing presence of regional and international retail brand names (Carrefour, Fawaz Al-Hokair Group, and Giant Stores) in the market have created strong demand for retail space. As a result, the Kingdom’s malls are reporting occupancy rates averaging 97%. In addition, GLA per capita in Saudi Arabia was low at 0.10 sqm, indicating high retail density relative to Dubai (1.4 sqm) and other European markets (1.0 sqm) (Refer exhibit 10). This reflects the strong demand for retail space in the Kingdom. Although the supply of retail space has increased significantly in the last couple of years, majority of these supplies have been absorbed by retailers enthused by the growing spending power of consumers in the Kingdom. Exhibit 10: GLA per capita across GCC region (2007)

Kuwait, 0.11

Oman, 0.06

Bahrain, 0.80

Qatar, 0.70

Saudi Arabia, 0.10

Abu Dhabi, 0.50

Dubai, 1.40

Source: Colliers international, Markaz research

Demand in the Saudi retail market remained buoyant during 2007 and until July 2008 GLA per capita was as low as 0.10 sqm



15

Going forward, total retail space in the Kingdom is expected to reach 6.95 Million sqm of GLA by the end of 2010, an increase of 29% over 2007. Saudi Arabia will be the second largest provider of retail space, accounting for 30% of the total supply coming online by 2010 in the GCC region (Refer exhibit 11). Colliers International expects GLA per capita to grow to 0.5-0.6 per sqm for Riyadh and Jeddah. However, in our view, most of this retail space is likely to enter the market at the end of 2010. Consequently, we expect the retail sub-segment to continue experiencing shortage at least until 2010. Exhibit 11: Expected spread of retail supply in the GCC in 2010

Oman, 2%Bahrain, 7%

Qatar, 8%

Kuwait, 10%

Saudi Arabia, 30%

UAE, 43%

Source: Retail International Retail rentals: continue to remain on an upward curve… The boom in the Saudi retail segment continued to push rentals higher. According to Coilers International average retail rental rates in the Kingdom have increased by approximately 15-20% since 2005. The annual rental rates for retail space in Riyadh averaged USD267-USD800 per sqm in 2007 (Refer exhibit 12). Exhibit 12: Shopping mall rents in Riyadh

Location Rent (USD/sqm/year)King Fahd RD 500-800Al Olaya RD 428-640North Ring RD 267-374East Ring RD 307-387

Source: Colliers international

Drivers of the retail segment:

• Kingdom’s accession to WTO, coupled with government’s increasing focus on the liberalization of foreign investment regulation, is likely to attract more foreign retail brands to the Kingdom’s retail sector. Retailers are now permitted to hold up to 51% in local companies.

• Increasing purchasing power, driven by the economic boom,

and increased exposure to western lifestyles.

• A major factor fuelling demand in the Saudi retail sector is the increasing number of tourist shoppers.

Retail space to reach 6.95 Million sqm of GLA by 2010, an increase of 29% over 2007 Retailers are now permitted to hold up to 51% of local companies.



16

Outlook for the retail sub-segment: We expect demand for retail space to remain buoyant in the short to

medium term. However, as majority of the retail supply is likely to go live in the next three to four years, retail rentals for malls (high-end) will stabilize or slightly decline in the long term.

(C) Tourism/Hospitality sub-segment:

• Tourism sector continued to report strong performance with number of pilgrims visiting the Kingdom reaching 4.95 Million in 2007, up 25.7% over 2004.

• The continued strong flow of tourists into the Kingdom has

translated to robust demand for hotel rooms. While hotel occupancy rates in Jeddah increased by 14% y-o-y in 2007, it rose marginally (1% y-o-y) in Riyadh.

• Around 2,200 hotel rooms will be delivered in the city of

Riyadh during the next five years in anticipation of a surge in business tourist arrivals; 33% of these supplies in Riyadh are expected to enter the market by the end of 2008.

• While hotel occupancy rates in Jeddah increased by 14% y-

o-y in 2007, in Riyadh, it rose by a marginal 1% y-o-y. Average room rates (ARR) have grown by 20% y-o-y in Jeddah and 42% y-o-y in Riyadh during 2007.

• As the new supply of hotel rooms is delivered, occupancy

rates and ARR will likely consolidate and stabilize in the medium term. However, given the strong potential for religious and business tourism, long term prospects remain positive for the sector.

Tourism has been a major driver of the hospitality market boom in Saudi Arabia. The Kingdom’s tourism sector continued to report strong performance during last five years. This was triggered by the government’s efforts to capitalize on the country’s religious and business tourism potential. Economic growth also led to an increase in business travelers to the country. Religious tourism continues to be a major driver… Religious tourism continued to drive the country’s hospitality industry. Total number of pilgrims visiting the Kingdom reached 4.95 Million in 2007, an increase of 25.7% over 2004 (Refer exhibit 13). According to Ministry of Hajj, the total number of pilgrims visiting Saudi Arabia will reach 5.62 Million by the end of 2009, translating in to a CAGR of 7.4% over the period 2004-09.

Retail rentals to remain on upward curve in the short to medium term Religious tourism continued to drive Kingdom’s hospitality industry



17

Exhibit 13: Number of pilgrims visiting Kingdom in "000" (2004-2009E)

2004 170 1,465 1,635 2,300 3,9352005 180 1,495 1,675 2,600 4,2752006 190 1,525 1,715 2,900 4,6152007 190 1,555 1,745 3,200 4,9452008 200 1,585 1,785 3,500 5,2852009 200 1,615 1,815 3,800 5,615

Umrah performers TotalYear

Pilgrims from

Pilgrims from Abroad Total

Source: Ministry of Hajj

Emerging business tourism… Economic growth also led to an increase in business travelers to the country. This, coupled with growth in foreign investment and development of the industrial sectors, has resulted in rapid growth in business tourism in the country. In retrospect the Kingdom’s hospitality has directly benefited from country’s tourism boom. The Kingdom’s government has taken several initiatives to transform the Kingdom into a world class religious and business tourist destination. Steps have been taken to improve the transport infrastructure facility to cope with the anticipated increase in inflow of pilgrims. To that end, the government plans to expand Jeddah’s King Abdul Aziz International Airport at a cost of USD1.5 Billion. Additionally, increasing connectivity between Mecca, Medina and Jeddah will further facilitate growth in religious tourism. Furthermore, The King Abdullah Economic City Port Zone will have a Hajj Terminal, with a capacity to handle 300,000 passengers, to serve religious tourists during the Hajj season. The terminal would operate year-around as well to serve Umrah pilgrims. The government has been encouraging private sector participation to speed up the development of tourism infrastructure in the Kingdom. Demand-supply: As mentioned earlier, the hotel industry has been a direct beneficiary of the increasing number of religious and business travelers. The continued strong inflow of tourists into the Kingdom has translated to robust demand for hotel rooms. This can be gauged from the fact that occupancy rates of hotels have risen by 35% in Jeddah and 29% in Riyadh over 2004-07 (Refer exhibit 14). Year-on-year, occupancy rates continued to trend upward. While hotel occupancy rates in Jeddah increased by 14% y-o-y in 2007, it rose marginally (1% y-o-y) in Riyadh. However, average occupancy rates in Riyadh stood at 71% below the Middle East region average of 74% during 2007. Other hospitality metrics also exhibited similar (positive) trends. Average room rates (ARR) have grown by 20% y-o-y in Jeddah and 42% y-o-y in Riyadh during 2007, while revenue per available room (RevPar) has grown 39% y-o-y in Jeddah and 43% y-o-y in Riyadh during 2007 (Refer exhibit 15). ARR in Riyadh stood at USD202 well above the average of USD160 for entire Middle East Region.

Favorable economic environment a key factor driving rapid growth in business tourism Occupancy rates and ARR continued to remain on upward curve during 2007



18

Exhibit 14: Hotel occupancy rates in Jeddah and Riyadh (2003-2007)

0%10%20%30%40%50%60%70%80%

2003 2004 2005 2006 2007oc

cupa

ncy

rate

s

Jeddah Riyadh

Source: HVS International

Exhibit 15: Hotel market performance indicator (2003-2007)

Hotel Occupancy ratesJeddah 53% 54% 61% 64% 73% 14%Riyadh 64% 55% 62% 70% 71% 1%

Manama 64% 72% 75% 71% 77% 8%Dubai 79% 86% 82% 84% 87% 4%

Abu Dhabi 68% 82% 85% 84% 81% -4%Kuwait City 84% 64% 70% 65% 58% -11%ARR (USD)

Jeddah 104 114 144 137 165 20%Riyadh 104 105 110 142 202 42%

Manama 122 132 177 196 249 27%Dubai 113 144 192 225 258 15%

Abu Dhabi 87 91 117 167 238 43%Kuwait City 233 230 237 239 239 0%

RevPar (USD)Jeddah 55 62 88 87 121 39%Riyadh 67 58 68 100 143 43%

2007% change (2007-06)2003 2004 2005 2006

Source: HVS International

Going forward, several new hotel developments are scheduled for completion over the next five years. Majority of this supply will be concentrated in the four-star and five-star category. According to HVS Middle East Hotel Survey, approximately 10,000 hotel rooms are expected to be delivered in the market over the next five years. Around 2,200 hotel rooms will be delivered in the city of Riyadh alone. However, approximately 33% of these supplies in Riyadh are expected to come on stream by the end of 2008 (Refer exhibit 16).



19

Exhibit 16: Future supply of hotel rooms in Riyadh

Hotel Rooms Year of openingMovenpick Riyadh 300 2008Novotel Al Naud 210 2008kempinski 206 2008Park Inn 250 2009Courtyard 200 2010Al Dhabab 150 2010Ritz-Carlton 250 2011Four-star Hotel (Northern Ring Road) 200 2011Five-star Hotel (Granada) 425 2012 Source: Colliers International, HVS International Drivers of the hospitality and tourism segment Positive drivers:

• Favorable investment climate, coupled with growing private sector participation, is attracting foreign investments in the Saudi tourism sector.

• Strong potential for religious tourism to unlock significant

demand for hotel rooms.

• The government’s focus on the tourism sector as a part of its diversification plan has led to the implementation of several large-scale tourism projects.

Outlook for the Hospitality sub-segment: A large part of the hotel room supply is expected to come online by the end of 2008. As the new supply is delivered, occupancy rates and ARR will consolidate and stabilize in the medium term, in our view. However, the hospitality industry in the Kingdom is poised for growth, considering the number of religious and business travelers expected to visit the country. This is expected to keep demand for hotel rooms firm. Consequently, we expect occupancy rates and ARR to again continue moving upward in the long term.

D. Industrial and infrastructure sub-segment: The industrial segment in the Kingdom continued to benefit from increasing government focus on diversifying the economy. The government continued to attract investments in the sector through liberal policies and granting licenses to new projects. For the period 2002-07, SAGIA licensed 5,472 projects worth SAR690 Billion (USD184 Billion). In line with expectations outlined in our last report, SAGIA licensed 1,438 projects worth more than SAR300 Billion (a growth of 32% y-o-y) in 2007. The government’s initiatives in making Saudi Arabia a key destination for companies intending to set up industrial units include: a) providing industries with investment benefits; b) setting up world-class infrastructure; and c) making it worthwhile for foreign as well as private investors to enter the sector. On the industrial estate front, Saudi Industrial Estates Authority is developing a number of new industrial estates across the Kingdom. This includes development of Sudair Industrial Estate Phase I (total area of 10 Million sqm) and Jeddah Industrial Estate (total area of 3.5 Million sqm) on Built-Operate-

Occupancy rates and ARR to consolidate and stabilize in the medium term Industrial sub-segment continued to benefit from increasing government focus



20

Transfer (B.O.T) basis. These industrial estates are expected to host 125 new industrial projects at an investment cost of SAR14 Billion. Major Industrial locations in Saudi Arabia: (a) Jubail and Yanbu industrial area: Jubail is one of the major industrial cities located in the Eastern Province on the Persian Gulf coast of Saudi Arabia. Most of the Kingdom’s heavy industries including oil and gas are concentrated in Jubail industrial cities. Jubail is also one of the largest ports in Saudi Arabia handling 29% of the total cargo volumes. Almost half of foreign investment coming into the Kingdom has been directed to Jubail. The industrial city is now estimated to produce 7% of the world's petrochemicals. Yanbu, located in Medina province is also one of the major export hubs of the Kingdom. It accounts for majority of the Exports of refined products and petrochemical derivatives. During 2006, around 51 industrial projects were developed in the two industrial estates of Jubail and Yanbu at SAR2.95 Billion of investments. Going forward, the two main industrial estates are expected to develop 125 new industrial projects at an investment cost of SAR14 Billion (USD3.7 Billion). Furthermore, approximately USD52 Billion are expected to be channelized in Jubail Industrial City for expansion of 62 Million sqm industrial site.

(b) Jeddah: Jeddah, located in the province of Mecca, is the third largest industrial city in Saudi Arabia after Jubail and Yanbu. It accounts for nearly 25% of the total developed area of industrial estates in the Kingdom. Jeddah port serves as a major transshipment port for mother vessels coming from Europe and the US. Going forward, government plans to make the Jeddah and KAEC ports a major transshipment hub in the Middle East region. A project of worth SAR1.9 Billion (USD0.5 Billion) is underway for the expansion of the Jeddah and KAEC port and is scheduled to be completed by the end of 2009. On completion, KAEC port zone will be the largest in the region with a capacity of 20 Million TEUs (Twenty-foot container equivalent units). This, in our view, will fuel the demand for transport and logistics facilities. (c) Riyadh: Riyadh accounts for 35% of the total developed area of industrial estates, the biggest in the Kingdom. Industrial segment in Riyadh primarily includes development of oil-related industry. The industrial segment in Riyadh is witnessing flurry of activities with planned development of Riyadh Industrial City. Furthermore, the proposed 257 Million sqm industrial estate at Sudair to the north of Riyadh is estimated to be a SAR150 Billion (USD40 Billion) project and will span over 20 years. The project is expected to be even larger than the King Abdullah Economic City, on completion. In addition, Sudair industrial estate would be located on the planned North South Railway interlinking Buraidah and Riyadh. This, in turn will increase its commercial viability, in our view.

The government also continued to encourage investments in infrastructure projects such as transport, logistics and telecommunications. Many large-scale infrastructure projects have been launched in the country to enhance connectivity. For instance, the

Total 125 new industrial projects at an investment cost of SAR14 Billion are expected to be developed in Jubail and Yanbu Riyadh accounts for 35% of the total developed area of industrial estates in the Kingdom



21

recently announced railway project estimated to cost SAR22.5 Billion (USD 6Billion) will link the two tourist destinations of Mecca and Medina through Jeddah. On the eastern cost, a 115-km railway line is being planned between the ports of Dammam and Jubail. Another proposed project is the GCC rail network at an estimated cost of SAR9.4 Billion (USD2.5 Billion), construction of which is expected to start in 2010. Separately, projects worth over SAR1.9 Billion (USD500 Million) are underway to improve the Kingdom’s road infrastructure. The Saudi government also has initiated an airport expansion project costing SAR5.6Billion (USD1.5Billion), which will increase annual capacity to 21 Million passengers by 2010. Investment in the industrial sub-segment is also expected to receive a boost from government’s 10 x 10 plan for developing economic cities. As mentioned in our last report, there were four economic cities launched across the Kingdom with an investment value of SAR268 Billion. Recently, the government approved development of two more economic cities (Refer appendix 2).

We expect demand for industrial space in the Kingdom to pick up as the government continues to open its doors to foreign investments, and provides several incentives to the sector. This factor, in turn, will likely push prices of industrial land higher, in our view. 5. Key Risks: (I) Delay in execution of laws and lack of transparency: As mentioned above, the new mortgage law has been approved by the Shura council, but is pending approval by the council of ministers. Any delay in implementing the new mortgage law could: a) thwart government efforts to curb inflation; and b) negatively impact demand in the residential segment. Furthermore, lack of transparency in implementation of property regulations, such as foreign ownership law, could limit the participation of foreign investors in the Kingdom’s real estate sector.

(II) Rising construction cost: Rising cost of construction and building materials could affect the industry negatively. Cost of construction in the Kingdom has increased almost 50% in the first half of 2008, following the hike in prices of steel, cement, concrete and aggregate construction materials. Cement prices in the Kingdom have almost doubled to SAR440 per tonne during 2007. Prices of steel in Saudi Arabia have almost doubled in the past two years. Contractors are submitting fixed price bids and incorporating large margins to cover for any sudden increase in construction cost. However, to avoid speculation, some contractors are not allowed to incorporate an escalation margin clause in the contract. The industry is also facing an acute shortage of skilled labor. Developers could face margin pressure owing to the rising cost of building materials and shortage of skilled labor.

(III) Expected high-leverage levels: As mentioned earlier, mortgage financing in Saudi is still in its infancy as compared to other developed and GCC markets. However, once the new mortgage law is passed, industry is expected to grow at a rapid pace. Developers are collaborating with financial institutions to offer property



22

financing products. Consequently, we expect leverage to constitute a potential long-term risk to the Kingdom’s property market.

(IV) Oil price risk: Although the Kingdom’s government is striving constantly to diversify its revenue base from the Oil sector, global oil prices continue to be a vital factor driving liquidity and government revenues. A sharp fall in oil demand due to slowdown of the US and European economies could potentially affect sentiment and impact oil prices negatively. This, in turn, could adversely affect planned government expenditure, and demand for real estate.

6. Conclusion: We continue to have an overall positive view on the Saudi’s real estate sector. We believe the real estate and construction sectors will continue to be the key drivers of the Kingdom’s efforts to diversify the economy and lower its dependence on oil and gas revenues. We also are encouraged by the many projects that are either under planning or development stage, especially within the infrastructure sector. Growth in the Kingdom’s real estate sector will likely be further supported by increasing private sector investment backed by strong government support. Added to that, the improving investment climate and legal infrastructure are likely to help sustain growth in the Kingdom’s real estate and construction sector, at least in the medium term. We also expect the new mortgage law to unlock significant housing demand. The sector also is likely to benefit from any government move to liberalize regulations, such as foreign ownership of property, to bring them in line with other GCC countries. In our opinion, the structural triggers necessary for growth in the Kingdom’s real estate sector continue to be firmly in place. Though there are a few potential downside risks, we continue to believe that Kingdom’s real estate market offers attractive opportunities to both investors and developers. 7. Stock market performance: There were 107 companies listed on Tadawul stock exchange with a total market capitalization of USD430 Billion (SAR115.0 Billion) as at August 2008. The sector’s market capitalization accounted for 5.6% of the total market cap of Tadawul All Share Index (TASI) as at August 2008. This is a lower representation of the segment in the equity market as compared to Kuwait,(8%), Qatar (7%) and UAE (14%). On the performance front, majority of the real estate stocks in Saudi continued to underperform the benchmark in 2007. This was due to limited growth in profitability on account of rising operating and production cost. Furthermore, the price of the majority of real estate stocks witnessed correction during 2008. We continued to analyze Red Sea Housing (RSH), Saudi Real Estate Co. (SRECO), Makkah Construction Co. (MCC), Emaar Economic City Co. (EEC), and Dar Al Arkan (DAA). These companies accounted for more than 60% of the real estate sector’s total market cap at August 2008. While DAA provided the lowest return (-36.4%), RSH yielded the highest return (59.5%) in 2007. Furthermore, the real estate stocks also continued to prove riskier than the benchmark index during the last one



23

year (Refer exhibit 17). EEC proved to be the riskiest stock, while DAA remained less risky. Exhibit 17: Risk & Return analysis of Saudi real estate stocks Real Estate stocks and Benchmark performance (Aug. 2007-Aug. 2008)

RSHEEC

DAA

SRECO

MCC TASI

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

-60% -40% -20% 0% 20% 40% 60% 80%Annualized return % 1year

Ann

ualiz

ed r

isk

% 1

yea

r

Source: Bloomberg, Markaz analysis

In spite of the decline, majority of the real estate stocks continued to trade at a wide premium to the benchmark in terms of price to earnings ratio. However, in terms of price to book ratio, real estate stocks traded at discount to the benchmark (Refer exhibit 18).



24

Exhibit 18: Valuation landscape of real estate stocks

Price Earnings (x)*

606.40

30.51 21.29 18.98 18.09 11.510

100

200

300

400

500

600

700

EEC MCC SRECO TASI RSH DAA

Price to Book (x)**

5.84

3.24

2.461.89

1.51 1.27

0

1

2

3

4

5

6

7

RSH TASI DAA EEC MCC SRECO

Source: Bloomberg, * Trailing twelve month, **Last Fiscal Interim


Kuwait Financial Centre “Markaz” 25

Appendix: 1 Major real estate projects in Saudi Arabia

Sr No. Project Name Type DeveloperProject

completion date Value USD Billion Sqm (Million)1 Al-Qasr Mixed-use Dar Al Arkan Real Estate

Development Company2008 0.40 N/A

2 King Abdullah Economic City - Residential Districts

Residential/ Commercial Emaar, The Economic City 2010 0.12 55.00

3 Emaar - Al Ghadeer Village Mixed-use Emaar Middle East 2010 0.60 N/A4 Emaar - Al Nada Village Mixed-use Emaar Middle East 2010 0.70 0.255 City Fanar Complex Mixed-use Injaz Development Company 2010 0.20 0.30

6 Yanbu Residential Development

Residential Royal Commission for Jubail & Yanbu

2010 0.10 N/A

7 Suwaidi Al-Qasr Mixed-use Dar Al Arkan Real Estate Development Company

2010 0.08 0.82

8 Jeddah Mixed-Use Towers Mixed-use KM Properties 2010 0.30 N/A9 Sredco - North Jeddah

Housing DevelopmentResidential Saudi Real Estate Development

Company 2011 1.00 1.00

10 Dar Al Arkan-Riyadh View Mixed-use Dar Al Arkan Real Estate Development Company

2011 1.60 10.00

11 Olaya Towers Residential/ Commercial General Organization for Social Insurance

2011 0.10 N/A

12 Al Muhamadiyah Mixed-use Tanmiyat Group 2011 0.30 2.4013 Andalusia Square Towers Mixed-use Kinan International Real Estate

Development Company2012 0.56 N/A

14 Riyadh Marriland Leisure Park Tourism Grand Real Estate Projects 2012 0.30 N/A

15 Jeddah Riviera Mall Retail Al-Ghazzawi Group 2012 0.30 0.1016 SCT-Al-Aagir Tourism

DevelopmentTourism Supreme Commission for

Tourism2012 1.00 N/A

17 Riyadh Housing Project Residential Durrat Arriyadh Real Estate Development Company

2012 0.80 3.20

18 Jabal Khandama Area (Phase I)

Residential/ Tourism Jabal Khandama Development Company

2013 1.60 2.00

Total 10.06 Source: Meed Projects, Note: This is not an exhaustive list of the projects


Kuwait Financial Centre “Markaz” 26

Appendix: 2 Economic cities-Snap shot

Economic City

Area (Million sqm) Focus

Investment size (USD Billion)

King Abdullah Economic City (KAEC) 168

Ports, Logistics, Light Industry & Services 27

Jazan Economic City (JEC) 100

Heavy industries, lifestyle, agro industries & people development 27

Prince Abdul Aziz bin Mousaed Economic City (PABMEC) 156

Logistics, agribusiness, minerals & construction material 8

Knowledge Economic City (KEC) 4.8

Knowledge based industries, tourism & services 7

Tabouk Economic City TBD N/A

Logistics, industry & Services, Tourism 30

Eastern Province Economic City TBD N/A

Industry, lifestyle, logistics N/A

Source: SAGIA

Appendix: 3 Economic freedom score of GCC countries (2008)

Bahrain Kuwait Oman Saudi Arabia UAE Qatar

Total Average score 72.2 68.3 67.4 62.8 62.8 62.2Regulation 80.0 68.5 55.8 72.5 47.9 60.0Trade 80.8 81.0 83.6 76.8 80.4 70.8Fiscal 99.7 99.9 98.5 99.7 99.9 99.8Government 80.3 74.6 60.7 69.1 80.2 72.1Monetary 74.3 73.8 74.7 76.7 70.9 69.4Investment 60.0 50.0 60.0 30.0 30.0 30.0Financial 90.0 50.0 60.0 40.0 40.0 50.0Property Rights 60.0 55.0 50.0 50.0 40.0 50.0Corruption 57.0 48.0 54.0 33.0 62.0 60.0Labor 40.0 82.1 77.2 80.6 76.2 60.0* 100 = most free

Source: Heritage Foundation and The Wall Street Journal

Appendix: 4 Cost of living index

Year Renovation, rent, fuel & water General2003 100.0 98.62004 100.3 98.92005 100.0 99.62006 101.0 101.82007 109.2 106.0

2008 Q1 119.6 112.9 Source: SAMA


Disclaimer This report has been prepared and issued by Kuwait Financial Centre S.A.K (Markaz), which is regulated by the Central Bank of Kuwait. The report is intended to be circulated for general information only and should not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. The information and statistical data herein have been obtained from sources we believe to be reliable but in no way are warranted by us as to its accuracy or completeness. Opinions, estimates and projections in this report constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinion of Markaz and are subject to change without notice. Markaz has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Kuwait Financial Centre S.A.K (Markaz) does and seeks to do business, including investment banking deals, with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.


Strategic Research Global Investment Themes – Energy (June-08) To Yield or Not To Yield (May-08) The Golden Portfolio (Apr-08) Banking Sweet spots (Apr-08) The “Vicious Square” Monetary Policy options for Kuwait (Feb-08) Outlook 2008: GCC (Jan-08) China and India: Too Much Too Fast (Oct-07) A Potential USD 140b Industry: Review of Asset Management Industry in Kuwait (Sep-07) A Gulf Emerging Portfolio: And Why Not? (Jun-07) To Leap or To Lag: Choices before GCC Regulators (Apr-07) Derivatives Market in GCC: Cutting a (very) long market short (Mar-07)

Periodic ResearchGCC Asset Allocation & Volatility (Monthly Since Jul-07) GCC Equity Funds (Monthly since May-07) Markaz Daily Morning Brief KSE Weekly Snapshot KSE Technical Analysis (Weekly) Private Equity Update International Market Update

Company Research

Real Estate Abu Dhabi (July-08) Algeria (Mar-08) Jordan (Mar-08) Kuwait (Feb-08) Lebanon (Dec-07) Qatar (Sep-07) Saudi Arabia (Jul-07)

U.S.A. (May-07) Syria (Apr-07)

Sector Research

• Saudi Telecom Co. (Jun-08) • ADCB (Jun-08) • SAFCO (Jun-08) • Banque Saudi Franci (Jun-08) • Masraf Al-Rayan (Jun-08) • Riyad Bank (Jun-08)

• Bahrain telecom. (Jul-08) • Emaar Properties (July-08) • Dana Gas (July-08) • FGB (July-08) • DP World (July-08) • OIB (July-08)

• Al Rajhi Bank (Aug-08) • Raysut Cement Company (Aug-08) • Doha Bank (Aug-08) • National Bank of Oman (Aug-08) • Union National Bank (Aug-08) • Qatar National Bank (Aug-08)

• Arab National Bank (Jul-08) • Qatar Elec .& Water Co (Jul-08) • Dubai Financial Market (Jul-08) • Ithmaar Bank B.S.C (Jul-08) • Qatar Islamic Bank (Jul-08) • Al Khaleej Dev. (Jul-08)

Markaz Research Offerings

Date post:	06-Feb-2018
Category:	Documents
Upload:	duongdien
View:	216 times
Download:	1 times

Saudi Arabia: Real Estate Update - · PDF fileSaudi Arabia: Real Estate Update 1. Executive...

Documents