Insights from PwC Middle East’s latest report, ‘Saudi Arabia’s off-plan market: A driving force fueling a vibrant and sustainable society’, shows that off-plan sales models can increase the effectiveness and affordability of the Kingdom’s real estate market, directly contributing to goals set out within Saudi Vision 2030.
As part of its National Housing Program, Saudi Arabia has set out a target of increasing home ownership to 70%, up from 47% in 2016. Achieving this goal requires a significant leap in residential real estate supply by approximately 1.5 million housing units or 115,000 units annually. The Kingdom’s National Transformation Program as well as the Ministry of Municipal and Rural Affairs and Housing (MoMRAH) have introduced several innovative products and initiatives to support this objective, such as market-ready units provided by real estate developers or individual owners, access to financial institutions for housing support, and setting up a legal framework for housing programs.
In a historically ready-property market, off-plan properties provide an opportunity for both local and foreign investors to create more affordable housing options, thereby boosting the GDP of the Kingdom. Off-plan sales can also stimulate and grow the banking sector to create financial solutions that could cater to different beneficiary segments, grow the real estate brokerage market, and stimulate multiple purchases from investors.
Off-plan residential offerings can help bridge the gap of 1.5 million housing units in Saudi Arabia
Highlighting the findings, Imad Shahrouri, Housing and Real Estate Cluster Leader, PwC Middle East, said: “Since its launch in 2016, the off-plan sales approach has become a key product to achieve the objectives set out in the National Housing Program. It has been a key factor in accelerating the process of home ownership, increasing the capabilities of real estate developers to undertake large and integrated projects, and stimulating supply. Off-plan sales have paved the way for evolutionary change within the local real estate market, creating a collaborative ecosystem for business consultants, construction contractors, private developers, and financiers, as well as marketing agencies and sales brokers.”
Recent years have seen a surge in off-plan property sales in the Kingdom, recording 52% growth in the first half of 2023, compared to the same period in 2022. The Kingdom’s real estate market has now made it a feasible possibility for a new generation of Saudis to own their own property. In tandem with considerable changes made to the local real estate market, including the development of comprehensive and clear regulations, cultivating stronger partnerships between public and private sector players, and empowering developers, the Kingdom can bridge the gap between supply and demand for residential housing. However, the off-plan sales in the country are relatively new, and obstacles such as a lack of clear regulations, insufficient awareness, and trust issues need strategic interventions for successful implementation.
“Since its launch in 2016, the off-plan sales approach has become a key product to achieve the objectives set out in the National Housing Program”
Marketing & Product Positioning: The cultural preference for ready-made units in Saudi Arabia poses a significant challenge to off-plan sales. Buyers typically favor tangible products over waiting for properties to materialize in a few years. To overcome this, a cultural shift towards embracing off-plan sales is necessary. Marketing plays a pivotal role in this transformation, requiring developers to bring awareness to local consumers about the benefits of off-plan sales purchases and implement effective pricing strategies.
Location: Off-plan sales projects often face challenges due to their distant locations from city centers and essential services. Developers need to recognize the importance of proximity to amenities, transportation, schools, and other facilities.
Rising Interest Rates: The gradual increase in interest rates, particularly in 2023, has adversely affected the off-plan sales. Higher interest rates slow down the housing market, as banks may struggle to meet the financing demands of multiple projects, creating a liquidity challenge. Striking a balance between liquidity and financing demands becomes crucial to navigate this challenge.
Saudi Arabia faces a shortage of developers with the necessary knowledge and experience to keep up with the fast pace of Vision 2030 objectives
Shortage of Developers: Saudi Arabia faces a shortage of developers with the necessary knowledge and experience to keep up with the fast pace of Vision 2030 objectives. To address this, the Kingdom can bring in more regional real estate developers as well as working to provide more support and training for local Saudi developers.
Quality Assurance: Buyers often rely on developers’ promises and marketing materials, raising concerns about the quality of off-plan sales properties. Delays in project completion and handover further diminish client confidence and investment returns. Implementing robust quality assurance mechanisms and addressing factors contributing to project delays, such as construction issues, permitting delays, and changes in market conditions, are essential.
“The successful implementation of the off-plan sales will increase the effectiveness and the efficiency of the real estate market in Saudi Arabia and increase the market depth through attracting additional local, regional, and international developers on a global level,” added Shahrouri.
Overcoming challenges through strategic measures can unlock the full potential of off-plan sales, contributing significantly to Vision 2030 goals and fostering a robust, collaborative real estate ecosystem in the Kingdom.
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