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Doing Business in Saudi Arabia – III Part: Residential Real Estate Market May 18, 2009

Posted by jgarciaalvarez in Competitiveness, Emerging Markets, Middle East, Private Equity, Real Estate, Saudi Arabia.
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Starting a blog is a relatively easy thing to do. Writing a weekly blog post is a not an easy habit to develop. This is why I commend Seth Godin (one of the blogs I frequently read), for posting his 3000th blog post earlier this year. This is why I also apologize for my absence from this open-source writing canvas for the last four months. I most appreciate you growing with me via your reading and comments!

Saudi Arabia residential real estate market is attracting local and foreign players. Unlike most of its counterparts in the GCC region, which have seen unprecedented growth over the last years, Saudi Arabia real estate market is poised for development and growth.

The residential sector accounts for 70 percent of all the Saudi real estate market.  Strong domestic demand for housing accommodations is estimated to be an average of 200,000 units per year. A fast-growing young population fuels a shortage in the supply of affordable housing units. An increasing number of professional Saudis stimulate an upgrade in the quality and the design of new homes.

These factors combined with favorable macroeconomic conditions, expected real estate legislative improvements, low home-ownership levels, and decreasing construction costs, have catapulted the Saudi Arabia residential real estate market to the center stage in the Middle East region.

At the same time, the bar for success in the Saudi residential real estate market has been raised. Over the last year, impetus to tap into the Saudi residential sector has exposed developers lacking a crafted defined strategy.  Such projects have been preceded by a questionable conception of project size and a poor understanding of the potential home-buyer. Such projects have been followed by inflated quality-cost price structures and delayed or non-deliverable promises.

Should new foreign entrants clearly address the issues mentioned above, other local challenges, including but not limited to labor, government processes, foreign ownership regulation, and project and mortgage Sharia-compliant financial mechanisms, become secondary to succeeding in the Saudi residential real estate market.

Dreams of Lawrence of Arabia: Allow me to share with you an empowering quote from this great adventurer. T.E. Lawrence, a former graduate from Magdalen College at Oxford University, wrote in the introductory chapter of his book the Seven Pillars of Wisdom, “All men dream: but not equally. Those who dream by night in the dusty recesses of their minds wake in the day to find that it was vanity: but the dreamers of the day are dangerous men, for they may act their dream with open eyes, to make it possible. This I did”.

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