January 2021

www.ussaudi.org

USSBC Economic Brief

Housing & Mortgage Market Review
Overview

Home ownership in Saudi Arabia, one of the key initiatives of Vision 2030, saw record growth during 2020
amid the COVID-19 pandemic. Driven by the growth of a large young domestic population and rising
incomes, residential real estate was the bright spot in the real estate sector as pandemic restrictions
stalled commercial real estate developments and resulted in the suspension or cancellation of projects.

The number of new residential mortgages for individuals in 2020 totaled SAR136.2 billion ($36.3 billion),
outpacing 2019 levels by 83 percent. The number of families moving into homes through the Ministry of
Housing’s Sakani affordable housing program grew 27 percent YoY and benefited 138,300 families.
These positive shifts were borne out of regulatory and financial developments in recent years that have
aided in the expansion of affordable housing options for Saudis. The growth in residential projects that
supply needed housing options coupled with strategic partnerships between the government and
commercial banks to expand financing solutions allowed the mortgage market to flourish in 2020.

Saudi Arabia’s Housing Program, one of thirteen Vision Realization Programs (VRPs) established in
2017, has targeted a 70 percent home ownership rate and 1.5 million housing units to be built by 2030. It
also established a 2020 target for outstanding real estate mortgages to reach SAR520 billion ($134 billion)
from SAR290 billion ($77 billion) in 2016. As of Q4 2020, real estate mortgages have grown SAR270.9
billion ($72.2 billion) since the end of 2016, exceeding its 2020 target amid record activity in the mortgage
market. Regulatory changes from SAMA and the Ministry of Finance, increased housing development
projects from the Ministry of Housing, and other initiatives such as the Public Investment Fund’s real
estate development company Roshn and its financing arm, the Saudi Real Estate Refinance Company,
are the driving forces that helped propel the Saudi Arabia’s mortgage market in 2020.

Market Determinants

Population Demographics
Saudi Arabia’s total population has grown at a compounded annual growth rate (CAGR) of 2.3 percent
since 2010 to reach 34.2 million people by the end of 2019, according to the General Authority for

Albara’a Alwazir Jacob Dichter

Economist Research Analyst
alalwazir@ussaudi.org jdichter@ussaudi.org
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Statistics (GAStat). More than 69 percent of the population is below the age of 40 which has driven an
influx of first-time homebuyers into the market. Between 2012 and 2019, population growth was the
strongest in Makkah and Riyadh Provinces due to increased employment opportunities and an expanding
housing supply, followed by Madinah Province and the Eastern Province. These four provinces account
for 73 percent of the country’s population and the majority of existing and under-construction housing
units. Saudi nationals account for an estimated 62 percent of the 34.2 million people living in the Kingdom.

The average Saudi household size remains relatively large as societal norms favor families staying
together for longer periods. However, cultural shifts coupled with rising income levels over the past few
years has seen the average household size shrink as Saudi families break away from the extended family
household nucleus. According to GAStat, the average Saudi household size decreased from 6.45 in 2010
to 5.86 in 2019. During the same period, the Saudi population grew by 2.3 million citizens while the
housing stock increased by 686,000 units. Along with a young population, the shrinking household size is
another factor in the growing demand for affordable housing in the Kingdom.

Over the past decade, the government has identified the gap between supply and demand in the housing
market as one of its primary development objectives. The Ministry of Housing’s mandate to reach 70
percent home ownership by 2030 revolves around targeting the two main barriers to home ownership in
Saudi Arabia: affordability and supply.

Affordability
Saudi Arabia has sought to reduce its average housing price to average income ratio by nearly 50 percent
over a five-year period. In 2015, the ratio stood at 9.9x, meaning the average residential unit price for an
apartment or house was 9.9 times that of the average annual income per capita. A key performance
indicator (KPI) of the Housing Program is reducing that ratio to 5x by 2020. In the fourth quarter of 2020,
which saw the highest value of new residential mortgages on record, prices increased 0.5 percent YoY to
an average estimated mortgage size of SAR514,400 ($137,200).

The real estate price index turned positive in 2019 after four years of declining prices and remained
relatively stable throughout 2020. However, prices differed widely by region. Prices increased in Riyadh
Province (+3.7 percent YoY), Madinah Province (+0.3 percent), and Qassim Province (+2 percent) while
declining in Makkah Province (-0.8 percent) and the Eastern Province (-2.5 percent).

Compared to an annual CPI of 3.4 percent in 2020, prices largely underperformed overall inflation which
was boosted by the value-added tax (VAT) increase in July. The government took action to buoy the
housing market by absorbing the 15 percent VAT rate for new home buyers up to SAR850,000. The
government then introduced a real estate tax of 5 percent and declared that new home buyers up to
SAR1 million would be exempted from paying the new taxes. However, one of the affordability challenges
is that land prices in the highest population growth regions of the Kingdom remain high and more
affordable units are concentrated in areas with lower population growth (i.e. outside the major five metro
areas). The government has been actively addressing regulatory shortcomings in recent years.
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Residential Real Estate Price Index

(Base Year 2014 = 100)

88.2 88.0
87.6 87.8 87.4
86.7
84.9
84.0 84.0 83.6 83.7
83.3
82.7 82.3 82.5
81.9

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 2020
Source: Ministry of Justice

Regulatory
Regulatory changes over the past decade have made the mortgage market considerably more attractive
to creditors and potential homebuyers. SAMA issued several measures to enhance the regulatory
framework and improve access to financing with five laws that entered into effect in 2014. These laws
provided a clear regulatory architecture for the licensing of banks and financing companies operating in
the real estate market and SAMA further amended these regulations in 2016 by raising the loan-to-value
ratio for citizens seeking first-time home ownership from 70 percent to 90 percent by 2018. SAMA also
announced its ‘Subsidized Mortgage Product’ in 2016 which made the borrower responsible for a 15
percent down-payment on the property value while commercial banks would finance 70 percent and the
Ministry of Finance would guarantee the remaining 15 percent. The central bank has also eliminated
some administrative fees, raised the funding cap for banks on home purchases, and removed penalties
for mortgage holders switching lenders.

The Real Estate Development Fund (REDF), which operates in tandem with the Ministry of Housing, has
also taken an expanded role in improving access to home financing, offering subsidized mortgages for
existing and new homes, and launching a mortgage guarantee program in 2017. The Fund also allocates
subsidies to the Military Support and Civilian Support initiatives that serve citizens benefiting through the
Ministry of Housing’s Sakani program. REDF maintains a waiting list of those waiting for access to support
loans in partnership with banks and financial institutions and while the average waiting period has been
reportedly reduced from 11 years to 5 years, the length of waiting periods remain a challenge. Support
loans through the REDF has a support rate of up to 100 percent for those with monthly low-income of less
than SAR14,000 and can be used to reduce the size of the down payment even further than SAMA’s
regulations.

Other government measures include the imposition of a 2.5 percent “white lands” tax which targets vacant
or undeveloped land to increase the number of plots available for development in urban areas. In 2020,
the government developed more than 2.2 million square meters of idle lands to provide more than 4,000
residential plots. The measure also aims to bring down the price of residential real estate and curb land
monopolization. The first phase, which imposes an annual fee on undeveloped plots exceeding 10,000
square meters, has reportedly generated SAR1.4 billion ($373 million). A second phase of the “white
lands” tax which targets unused lands will be implemented in Q1 2021.
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Supply
Between 2010 and 2019, the total housing stock in Saudi Arabia rose 23 percent from 2,966,000 units to
3,682,000 units. Villas and apartments now represent an increased share of housing stock while the
traditional houses and other types have declined since 2010. According to GAStat’s 2019 housing survey
(the latest available data), apartments represented 44 percent of the total housing stock while villas and
traditional houses represented 30 percent and 18 percent, respectively.

Housing Stock by Type

(Housing Units)
4,000,000

3,000,000

2,000,000

1,000,000

0
Traditional Villa Apartment Other Total
House
2010 2019
Source: GAStat Housing Survey, Saudi Census

The Sakani affordable housing program has become one of the primary drivers of supply in the Kingdom.
Launched in 2017 by the Ministry of Housing, Sakani allocates financing and residential products that
include mortgages, land parcels, and completed residential units. The REDF also subsidizes these
financing products which has led to high demand among low and middle-income Saudi homebuyers. The
Sakani program also offers Saudi citizens who own land the possibility of obtaining a 100 percent profit-
backed real estate loan to build their own homes. It enables Saudi citizens to receive building permits
within six months, start constructing within a year, and complete construction of their homes within three
years.

In 2020, Sakani exceeded its earmarked 300,000 beneficiary target by more than 90,000 and signed
partnerships with the private sector to construct more than 60 new housing projects. The 138,300 families
that moved into new homes under the Sakani program represented a 27 percent increase over 2019.
According to the Ministry of Housing, housing completions across the public and private sector in Q4 2020
were concentrated in Riyadh (22 percent), Jeddah (17 percent), Dammam (13 percent), and Makkah (10
percent).

The Ministry of Housing, often through the National Housing Company, contracts both local and
international private sector companies for the delivery of construction works at housing development sites
across the Kingdom. U.S. companies Parsons and Katerra Construction have both delivered large-scale
residential real estate projects in recent years through collaboration with the Ministry of Housing. The
Public Investment Fund’s (PIF) urban community development company, Roshn, also promises to be a
major development entity in the coming years. Launched in 2020, Roshn inaugurated an ambitious
30,000-unit Riyadh Community development project in recent months and plans to meet growing demand
for housing through construction projects in Jeddah, Makkah, and the Eastern Province as well.
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Housing Construction in Saudi Arabia

(Q4 2020)
25%
20%
15%
10%
5%
0%

Source: Housing Data and Observatory Center, Saudi Electricity Company

Secondary Market
While the government has worked to increase affordable housing supply through Sakani and other
programs, the absence of refinancing firms in the Saudi mortgage market until recently had threatened to
limit the ability of commercial banks to expand their lending portfolios in the near future. The Saudi Real
Estate Refinance Company (SRC), a subsidiary of the PIF, was established shortly after the launch of
Vision 2030 and has since played an important role in boosting liquidity in the Saudi mortgage market.
SRC reportedly held SAR2 billion ($533 million) in its mortgage portfolio at the end of 2019 and, in July
2020, announced it would buy an additional portfolio of home loans worth more than SAR3 billion ($800
million) from the Public Pension Agency. This activity, in part, allowed commercial banks to meet pent-up
demand following the COVD-19 lockdowns and boost the rate of mortgage origination. SRC is expected
to refinance up to SAR75 billion ($20 billion) of the kingdom’s housing sector over the next five years,
reaching SR170 billion ($45 billion) by 2026.

Market Performance

Mortgage Market
In 2020, the total value of new residential mortgages provided to individuals by banks and financing
companies was SAR140.7 billion ($37.5 billion), a 77 percent increase over 2019’s SAR79.6 billion ($21.2
billion) level. The number of residential mortgages grew from 179,200 contracts in 2019 to 295,600
contracts in 2020 where houses were the leading segment. Commercial banks accounted for 96.8 percent
of new mortgages while financing companies accounted for 3.2 percent. Consequently, new residential
mortgage contracts have grown at a 91 percent CAGR between 2016 and 2020. The total value of new
residential real estate financing in 2020 was more than eight times its 2016 level, while the average
contract value fell from SAR741,600 ($197,800) to SAR470,800 ($125,600) over the same period.
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Total Number of New Residential

Mortgage Contracts by Banks
90,000
75,000
60,000
45,000
30,000
15,000
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 2020

Source: SAMA

The total number of mortgage contracts surged in H2, partially aided by the lifting of COVID-19 curfews in
June. The government announced steps such as the VAT exemption and the expansion of mortgage-
backed securities to further fuel the momentum of the housing market. Residential mortgages as a
percentage of total bank credit in Saudi Arabia rose from 1.1 percent in 2016 to 7.6 percent by the end of
2020, indicating the increased exposure of commercial banks to the growing Saudi mortgage market.

At the onset of the COVID-19 pandemic, SAMA followed the U.S. Federal Reserve by cutting its key
interest rate from 2.25 percent to 1 percent. The three-month Saudi Arabian Interbank Offered Rate
(SAIBOR) reached a four-year low of 0.82 percent at the end of December 2020 compared to 2.14
percent in February 2020. The lowered cost of funding for banks likely eased mortgage rates, thus
incentivizing new homebuyers to enter the mortgage market.

Residential New Mortgage Financing

(SAR Million)
18,000
15,000
12,000
9,000
6,000
3,000
0

Houses Apartments Land

Source: SAMA
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In Focus: Housing Sustainability

As Saudi Arabia diversifies its economy, the government has increasingly looked towards sustainability initiatives that intersect
with Vision Realization Programs such as the Housing Program. “Mostadam” is a new sustainability initiative aimed at lowering
the environmental impact of residential real estate and increasing energy and water efficiency in the real estate sector.

Launched in 2019, Mostadam introduces a green building rating system developed by the Ministry of Housing that assesses the
design, construction, and operational standards of residential and commercial buildings. Green building rating systems lower
construction and building-related costs and reduce their environmental impact. Mostadam goes beyond the minimum Saudi
Building Code standards by assigning “keystone” credits based on a review by an accredited Mostadam assessor. For an existing
building to be eligible for a Mostadam rating, its performance must be monitored across 1) energy consumption, 2) water
consumption, and 3) waste generation over a one-year period at a minimum occupancy of 75 percent.

The Ministry of Housing’s Building Technology Stimulus Initiative (BTSI) is a separate program aimed at accelerating the shift
towards technology-based delivery methods in residential real estate known as Modern Methods of Construction (MMCs). MMCs
include 2D/2.5D building systems that include light gauge steel, insulated concrete forms, insulated precast systems and 3D
building systems that include modular concrete and light gauge steel. This shift is led by the government’s interest in addressing
construction market challenges that include gaps in housing price and construction speed. MMCs boost sustainability by reducing
the environmental impact of construction through precision-engineered and factory-controlled fabrication and assembly. BTSI
seeks to attract new factories to the Kingdom and help localize best-in-class cutting-edge technologies through local and
international partnerships. According to the Ministry of Investment, current MMC supply capacity is estimated at 40,000 units per
year with a long-term aim of reaching 400,000 units across residential, commercial, and industrial real estate by 2025 to meet
growing demand.

The growth in mortgage contracts has also spurred an increase in construction activities to keep up with
demand. Further evidence of a pickup in residential real estate construction is point-of-sale (POS)
transactions on construction & building materials. This category has picked up strongly through H2 2020.
Spending on construction & building materials fell 39 percent between March and May 2020. After a
strong rebound in June, which resulted in the highest monthly total on record of SAR3 billion ($808
million), sales averaged 29 percent growth in each month through the end of the year, according to SAMA
data.

Construction & Building Materials Sales

(SAR Million)
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2016 2017 2018 2019 2020

Source: SAMA
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Outlook

Demand Outlook
The three main factors that will drive demand for housing are concentrated on a growing young
population, rising income per capita, and the downsizing of the Saudi average household size. The
evolution of these three factors will lead to the need for additional affordable housing options to meet
pent-up demand. To reduce the supply and demand imbalance, the Kingdom will need to construct an
additional 1.2 million homes over the next 10 years to reach a total housing stock of 4.96 million units by
2030. Demand will approximately grow from 99,600 units in 2021 to 153,000 units by 2030 with an
average of 124,000 units over the next 10 years.

Housing Market Size vs Total Saudi Population

Thousands
30,000
23,529 23,819 24,113 24,411 24,712
22,678 22,958 23,242
25,000 22,129 22,402

20,000
15,000
10,000 4,829 4,962
3,887 3,994 4,104 4,217 4,333 4,452 4,574 4,700
5,000
-
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Total Housing Stock Total Saudi Population

Source: GAStat Housing Survey, USSBC estimates

A substantial number of investments will be needed to construct the additional 1.2 million homes over the
next 10 years to meet demand. Estimating the value of a housing unit at approximately SAR530,000 over
the next 10 years, the Kingdom will need to spend approximately SAR657 billion ($175 billion) on newly
constructed homes. This represents an average outlay of SAR66 billion ($18 billion) per annum.

Forecasted Unit Demand vs Investments Required

Units SAR Millions

180,000 90,000
150,000 75,000
120,000 60,000
90,000 45,000
60,000 30,000
30,000 15,000
- -
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Annual New Demand Investments Needed (Rgt)

Source: GAStat Housing Survey, Ministry of Justice, USSBC estimates

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Residential Construction Outlook

According to USSBC’s Contract Awards Index database, residential and mixed-use real estate contract
awards declined from SAR27.4 billion ($7.3 billion) in 2019 to SAR8.3 billion ($2.2 billion) in 2020 with
activity slowing to a halt in the second quarter amid the coronavirus, the liquidity crunch, and lockdowns.
Construction contracts were slow through the third quarter but picked up considerably in Q4 with Roshn
awarding several contracts for its massive 30,000-unit Riyadh Community project to a consortium of local
and international construction companies. The number of delivered residential real estate projects
increased from SAR12.4 billion ($3.3 billion) in 2019 to SAR13.9 billion ($3.7 billion) in 2020. According to
MEED Projects, the value of completed residential construction projects is estimated to surge to SAR51.4
billion ($13.7 billion) in 2021, assuming projects remain on schedule.

The further increase in supply in 2021 reflects the resumption and delivery of several Ministry of Housing-
led projects such as the Orchid Housing Project in Riyadh and other private sector developments.
According to MEED Projects, an estimated 59,000 housing units are expected to be completed in 2021.
This figure includes homes, villas, and apartments. While megaproject developments have involved some
temporary worker residential facilities, recent tenders for the NEOM and Red Sea Project indicate that
construction awards for permanent residential housing at the project sites will be an important segment of
the residential construction market in the coming year.

Residential Real Estate Contract Awards

by Completion or Expected Completion Year
(USD Billion)

$13.7

$7.5
$5.6
$4.3 $4.1 $3.7
$3.3
$2.4
$1.0 $0.6 $0.4
$0.2

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Source: MEED Projects, USSBC Construction Awards Index Database

The decline in awarded contracts in 2020 will momentarily decrease construction activity in the short-term.
Consequently, the rebound in construction activities will require strengthening the labor workforce. The
decline in the expatriate workforce presents construction challenges as a consequence of the pandemic.
However, this decline may also reduce some of the pressure on the supply side as the home ownership of
Saudi nationals increases. Given demographic and economic developments in Saudi Arabia, we expect
continued investment from key government entities in the residential real estate market to maintain robust
efforts to drive construction of modern and affordable housing.
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Table 1 - Residential Projects to be Completed in 2021

Owner Project City Awarded Completion Product Quantity

(Housing units)

Ministry of Housing Jeddah Heights Jeddah 2016 Q2 2021 Apartment 8,649

Ministry of Housing Telal Goroob Jeddah 2018 Q3 2021 Apartment 6,944

Ministry of Housing Deyaar Al-Hasa Ahsa 2019 Q3 2021 House, Villa 4,380

King Abdullah
Ministry of Housing Jizan 2018 Q2 2021 House, Villa 4,170
Housing Complex

Fadhili Residential
Saudi Aramco Jubail 2016 Q1 2021 House, Villa 2,500
Camp

Residential
Ministry of Interior Jizan 2015 Q1 2021 House, Villa 2,420
Compound (JA)

Source: MEED Projects, USSBC Contract Awards Index Database

While the pandemic presents substantial headwinds as the risk of a complete shutdown of activities
remains a possibility, the bigger task will be to maintain the pace of residential construction to meet pent-
up demand and bring the housing market closer to equilibrium. With demand still outpacing supply, our
forecast of the need to construct 1.2 million homes at an estimated cost of SAR657 billion ($175 billion)
over the next 10 years will be challenging. Yet, it will present a tremendous opportunity for international
and local real estate development firms as well as incoming financing companies to partner together to
reach the government’s goal of 70 percent home ownership.

Disclaimer:
The information contained in this document was gathered from sources believed to be accurate at the time, and
the U.S.-Saudi Business Council accepts no liability from errors or omissions in any part due to human or mechan-
ical error. The above information should not be taken as investment advice or as trading recommendation on be-
half of the U.S.-Saudi Business Council.
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or opinions contained herein. You are advised to consult, and make your own determination, with your own
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