After several years of muted growth, the Kingdom experienced a considerable expansion in its real estate sector beginning the year 2019. For instance, the RE contributed $56 billion in 2019 constituting 7.06% of the Kingdom’s GDP. In this performance, the residential property represented 65% of the RE value in 2019 while the commercial segment represented 31%. This growth has been characterized by challenges ranging from technical regulations, branding, and localization requirements, especially to international investors who seek to benefit from RE. In the present article, we look at some of these RE challenges you’re likely to face in the Kingdom’s expansive market.
Several factors contributed to the exponential growth
- The government target of 70% homeownership by the year 2030
- Increased commercial, retail and corporate mortgages leading to real estate price index (REPI) recovery to 81.9 in 2022.
- A string of giga projects such as NEOM and Qiddiya run into billions of USD in the Kingdom
- Availability of funds for construction materials with loans of up to 75% and a repayment period of 20 years for cement production facilities.
Elements that international Investors have to take into consideration
Despite, the growth drivers and market opportunities in the Kingdom, investors should be aware of certain factors that pose a considerable challenge when working or seeking to operate in the Kingdom.
The introduction of local content requirements by the government can be a challenge to international investors who may want to purchase construction materials from their country. The Kingdom established a total value added (KITVA) program to strengthen local purchases and supplies of goods. This policy impacts the procurement processes, especially for investors who are not familiar with the established regulations. Similarly, the Kingdom seeks to enhance Saudization by establishing quotas for hiring Saudi nationals. The international investors can take this into their advantage and benefit from the Kingdom’s rich human and natural resources.
Branding and Marketing
Branding and marketing of a construction project are of utmost importance to its success. However, understanding the local customs, traditions, and observance of the Islamic faith is important for success in the Kingdom.
The Kingdom has made considerable efforts towards standardization based on the International Organization for Standardization. However, the Kingdom’s adherence to a single technical regulation, ISO, can result in market access restrictions to certain construction materials. Awareness among international investors regarding this challenge is vital for operation and investment in the market.
In sum, the attractiveness of the RE estate market comes with various challenges to the international market in the Kingdom. The government has put in place different measures to combat these challenges to increase access to the RE market as part of the economic transformation and the realization of the vision 2030 goals. However, being aware of these factors is an important step toward success in the market.