Q&A: Red Sea Housing official says construction slowdown could be good news
13/04/2016 Argaam Exclusive
by Nadeshda Zareen
As Saudi Arabia looks to meet its growing demand for reasonably priced homes, Mohammed Al-Motawakil, head of Red Sea Affordable Housing division tells Argaam that his firm is carefully studying new developments to address the shortage.
Q: What are Red Sea Housing's future projects for affordable housing? And to what extent will they help address the demand?
A: Red Sea Housing has been studying the affordable housing market in the kingdom for several years, with an aim to address the anticipated projects spearheaded by the Ministry of Housing. Currently, RSH is studying a few projects for affordable housing that could potentially turn into a community development, under the Ministry of Housing’s strategy to reduce an unprecedented level of demand for residential property.
Q: What is the current demand in Saudi Arabia for affordable housing?
Do you expect it to rise or decrease over the short-term?
A: According to recent announcements by the Ministry of Housing, the total demand for housing in the kingdom by 2020 is approximately 1.5 million units. A recent study by JLL deemed 62% of the demand to be for affordable housing. If the Ministry of Housing is able to perform and execute its strategy, the demand should be reduced by the new supply of units to levels that are more in line with expectations for a market like Saudi Arabia.
Q: Does the housing issue in Saudi Arabia have to do with lack of homes, or citizens' inabilities to purchase their own homes?
A: The lack of homes is mainly due to the high cost of land due to the large parcels of "white lands" within the infill areas which creates a gap between the price of homes and ability to obtain financing related to the level of income of each segment of the market.
Q: How will the recently approved “white land tax” impact the affordable housing segment?
A: The white land tax announcement and law has already spurred activity among landowners to explore development opportunities. We are in discussion with a number of landowners who would like to develop or sell their properties, or to launch joint ventures with other parties, in order to avoid the land tax that will take effect in the month of Ramadan of this year.
Q: What will be the impact of the slowdown in the construction sector?
A: Clearly there is a slowdown in the construction industry as a whole, due to broader economic conditions. This could result in a positive impact from one end, as we expect contracting prices to be a bit more competitive. Having said that— the challenge will remain in finding qualified contractors with the right workforce to execute new projects.
Q: What is the status of Red Sea's factory in King Abdullah Economic City? How much of it is complete and by when is it expected to be functional?
A: For the factory in KAEC, Red Sea Housing Service Co. has completed the study to explore all available options that will help utilize current resources and maximize future returns. The results will be announced in the second quarter of this year, once all necessary procedures have been finalized. The factory specializes in the production of prefabricated housing units.