Impatct on the real estate sector

PPPs are an important instrument in the NTP's plan to increase the contribution of the real estate sector from its current level of 5% of GDP to 10% by 2020. The sectors with the greatest potential for such arrangements include affordable housing, physical and social infrastructure (e.g. education and healthcare), and tourism.

The Saudi real estate sector is currently characterised by extended project delays and low materialisation rates. Plunging oil prices have contributed to this problem by reducing the level of government expenditure available. The potential for PPPs to replace this government spending with private sector investment lies at the heart of the increased interest being shown in these instruments.

The delay of many large-scale public housing developments has lengthened the already significant waiting list for affordable housing announced in 2011, adding pressure on the government to find a solution to what is both a social and an economic problem in Saudi. Private sector developers and investors have shown keen interest to enter into PPP agreements in the housing market, attracted by access to otherwise unavailable land and substantial demand. The Ministry of Housing has responded to this interest by entering into a number of MoUs with private developers. So far many of these MoUs involved the private sector designing, building, and selling units, with the public sector providing access to end users or public resources.

The planned Dahiyat Al-Fursan development located near King Khalid International Airport in Riyadh is by far the largest of these projects, accounting for almost 50% (USD 20 billion or SAR 75 billion) of the current total pipeline's value, which stands at USD 42.9 billion (SAR 160.8 billion), according to MEED projects. Spanning over an area of 38 km sq, and a potential capacity of over 600,000 individuals, the development aims to construct 100,000 homes over a period of ten years. Two of the main participants of the PPP with the Ministry of Housing, Daewoo and Hanwha, have an extensive track record in the development of mega residential projects, highlighting the benefit of subject matter expertise to resolve strategic issues, and encourage higher materialisation.

It is hoped that involving the private sector in large-scale residential projects will have a positive impact and help resolve some of the current challenges that have delayed the delivery of many projects to date.

These challenges include:

- Licensing approvals - the NTP aims to reduce license approval times for new residential real estate developments from its current level of 730 days to 60 days by 2020.

- Connecting services - many projects have faced delays in connecting to utilities such as water and electricity.

- Labour shortage - the shortage of labourers has resulted in the delay of many large-scale projects across the country over the last four years.

Other potential improvements that could result from greater private sector involvement in the housing sector include greater competition, and therefore lower prices and improved affordability. By encouraging more innovation and product differentiation, the quality and range of residential development entering the Saudi market may also be improved.