A new report from the Kuwait Financial Centre points out that reform is urgently needed as at present most of the younger generation live with their parents and are deprived of real estate ownership by the huge cost.
This in turn will lead to a steep increase in demand for real estate which experts predict will be in the range of 500,000 to 800,000 by 2013. Rising oil prices is also expected to lead to higher demand, according to the report.
'The demand will experience a 50% upward shift from its current levels if the mortgage law comes into force, thereby turning around from the historic trend of waning investment in residential real estate and lack of home ownership affordability for the younger generation,' the report says.
The currently planned organised supply will provide about 73,000 units from 2009 to 2013, much less than demand, the report warns.
Younger property investors currently face a rental cost of 45% of their current income levels or a monthly mortgage at 41% should they decide to buy on their own so the mortgage situation is a key to future market growth, it adds.
'The mortgage law, if and when passed, will include them in the target market and expand the potential for residential real estate in Saudi Arabia thereby turning around the waning investment trend seen in the past decade,' the report says.
The property supply is expected to change radically. At present it is dominated by projects worth less than $50 million but will move towards more organised supply such as mega cities. 'The current major cities of Riyadh, Jeddah, Makkah, Al Khobar and Dammam will remain the centre of activity for the next five years till the boom gets shared by the planned mega cities,' the report continues.
Analysts expect Makkah and Jeddah to experience a much higher growth compared to other cities mainly due to the current pent-up demand.
