Does Real Estate Investment Save Crises?

Saudi Arabia ranks second as the world's largest real estate market with investments exceeding two trillion Saudi riyals. The real estate sector is estimated to need around 6 million housing units by 2022, in addition to being a significant contributor to the budget and a solution to major challenges.

Unlike other sectors, the real estate sector has proven to be the least affected by the COVID-19 pandemic. Real estate institutions continued to register reasonable growth rates in 2020 despite the deep impact of the pandemic. Through Vision 2030, the Kingdom aims to support real estate development institutions, considering the sector as a leading driver that will lead the country towards economic recovery and revitalization. The current directions of real estate development institutions align with Vision 2030 and the directives of the Crown Prince, who recently stated his vision for the capital city, aiming to double the number of residential clusters. Experts suggest that the real estate activities, construction and building, and housing finance sectors will experience significant growth this year, with homeownership rates expected to reach 70% according to the housing program, one of the programs of Vision 2030.

Experts believe that the continued growth of the real estate sector is due to ongoing development and construction of residential and commercial projects. Riyadh, classified as one of the top 20 dynamic cities worldwide from a real estate perspective, has witnessed significant growth. Financial and economic analysts agree on the need for new, non-traditional solutions to sustain growth in the real estate sector, which will be a cornerstone in the recovery of the economy from the effects of the COVID-19 pandemic.

The pandemic-induced circumstances have caused some decline in real estate demand, widening the gap between supply and demand due to increased supply and decreased demand. This issue requires unconventional measures by real estate developers who possess a database that includes international investors, not just local ones. Therefore, diversifying the investor base among major real estate developers will have the greatest impact on stimulating demand for residential and commercial properties. The population composition in Saudi Arabia necessitates the construction of more residential and commercial units, and there is a need for faster-paced construction as the homeownership rate in the Kingdom has not exceeded 52% to date. This percentage indicates the extent of the need for constructing more residential and commercial projects in the country.

In recent years, governmental legislations have been issued to regulate the real estate sector, which has helped stimulate investment in the housing sector in the Kingdom. As for this year, the residential real estate sector experienced its highest activity in the first quarter of 2021, reflected in the new residential real estate financing provided to individuals by banks, amounting to 136.2 billion Saudi riyals ($36.3 billion), an increase of over 83% compared to the financing volume in 2020, according to the central bank's figures. The real estate sector is expected to continue its momentum in the next four years, especially with the recent announcement by the Ministry of Municipal and Rural Affairs and Housing of its housing program, intending to inject 300,000 residential units into the Saudi market by the end of 2025.

The COVID-19 crisis has undoubtedly affected the real estate sector, but its effects have been manageable. The impact of the real estate sector in Saudi Arabia is pivotal, as it is a major contributor to the economy, attracting both local and foreign investments. Now, the sector is gradually returning to its usual activity with significant momentum in demand for residential and commercial units.