To much of the western world, Saudi Arabia’s society is impenetrably closed. Stereotypes abound: Mention the kingdom and at best people immediately think of its oil wealth and its women in tent-like black shrouds. At the worst, images of 9/11 pop into their minds. To make matters worse, Osama bin Laden has arguably become the world’s most famous Saudi. Of course, these caricatures don’t paint the whole picture of this mysterious country.
Analysts say the Saudi Arabia’s real estate sector is healthy and suffers little from the credit crunch that has decimated markets elsewhere. International buyers may want a piece of this growing pie, but the country’s restrictive investment environment could deter many.
About Saudi Arabia
Saudi Arabia is the biggest country in the Arabian Peninsula and shares borders with Jordan, Iraq, Kuwait, Qatar, Bahrain, the United Arab Emirates, Oman and Yemen. Its land area is about a fifth of the U.S. at 830,000 square miles and has an estimated population of 28 million, including over 5.5 million non-citizen residents.
Saudi Arabia is the biggest oil producer and exporter in the world, according to official statistics compiled by the U.S. Department of Energy. The kingdom’s economy is extremely reliant on its oil wealth and related industries. At 90 percent, revenues from petroleum make up a lion’s share of exports from the country. Forty percent of its GDP is fueled by oil-based products.
Millions upon millions of people visit the kingdom of Saudi Arabia every year. A majority of these tourists come as religious pilgrims to perform the hajj ritual, a life-long dream for most of the world’s billion Muslims. Saudi Arabia doesn’t at all fit the bill of a typical tourist destination but it is in a notable position for having within its borders two of the holiest cities in Islam, Mecca and Medina.
“Saudi Arabia may not be for everyone as it is a vastly different, closed society and culture,” said Carol Fleming, a writer and a former American diplomat who is currently living in Riyadh, the capital and the largest city in the kingdom. Visitors, especially women, must be prepared to deal with an intensely restrictive cultural environment which can prove to be quiet unpleasant. However, country offers a great deal of attraction for those who enjoy historical sites and nature tourism.
“The desert is a constantly changing kaleidoscope and a joy to experience at all seasons. Saudi Arabia is also home to the historic Maida’an Saleh, a settlement of the Nabataeans [ancient Semitic people] not too far from the holy city of Medina,” said Fleming, who blogs about her experiences at American Bedu.
Despite its wealth, the country’s infrastructure is not up to par with that of developed nations. Day-top-day conveniences such as Internet access, cell phones and ATM machines are not always readily available.” ATM machines will frequently be ‘down’ or out of cash. Reliable Internet can still be a challenge to obtain. If one encounters problems with either Internet or mobile phones it can take several days or weeks for customer service to respond and properly address it,” said Fleming, whose work is also published in Bridges: An Anthology.
Saudi Arabia real estate
There maybe a worldwide recession looming and property markets declining elsewhere, but the real estate sector in Saudi Arabia is set to grow sharply over the next four years, according to a recent report from Jones Lang LaSalle, a financial and professional services firm specializing in real estate. The growth is fueled by an expanding economy and positive demographic trends, according to the report, The Gulf’s Powerhouse – Saudi Arabia’s Real Estate Market.
Saudi Arabia’s real estate market is the largest among the Gulf Cooperation Council (GCC) countries: Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates. The country has a fast-growing population with those 20 or younger making up approximately 45 percent of the population, according Jones Lang Lasalle. Major cities in the country are growing as a result of a fast-paced urbanization. In the face of strong demand, the residential property sector is experiencing an acute shortage of available units, currently running at just above 500,000. This number is expected to double to 1 million over the next four years. Similarly, a shortage of quality accommodations is anticipated in the hotel sector as religious tourism to the country continues to expand. The office sector is also registering rental yield growth in cities like Riyadh and Jeddah.
“We believe the opportunity for [real estate] business in Saudi Arabia is vast, with the its economy enjoying a higher degree of internal self sufficiency with a sizable domestic market, less dependence on global capital or international workforce,” said John Harris, the head of Jones Lang LaSalle’s Saudi operations, according to the company’s press release. “Saudi Arabia also enjoys low levels of debt in both public and private sectors and 25 percent of global oil reserves,” he said.
Buying property in Saudi Arabia
A property law passed in 2000 makes it possible for foreigners to own real estate in Saudi Arabia, according to Zawya, a Middle East business information company. However, restrictions apply. A non-Saudi, non-Gulf Cooperation Council citizen who wants to buy must be a legal resident of the country and must purchase the property for his own use. The law also gives permission to foreign investors who look to own real estate as part of conducting their business. International companies can also purchase employee housing for licensed projects.
Permission from the Saudi Arabian General Investment Authority is required for foreign ownership of land. To be approved, a property development project needs to be valued at above 30 million Saudi Riyals, approximately 8 million U.S. dollars at current exchange rates. In addition, the money needs to be invested within five years of the original land purchase date.
To stave off real estate speculation, the Saudi law doesn’t allow properties to be sold within five years of the time of purchase, according to Global Property Guide. The holy cities of Mecca and Medina are off-limit for foreign ownership.
“Given the size of the market, the current economic status and the demographics in place we expect to see a substantial increase in demand for [real estate] advisory services in the Saudi Arabia, as investors look for opportunities in the Region with minimal exposure to the global financial conditions,” said Abdollah Al-Faadhel, Director of Jones Lang LaSalle’s branch in Riyadh.
With present trends of robust prices and an insatiable global appetite for oil, it is not really surprising Saudi Arabia remains unscathed by the economic crisis that has engulfed most other countries.