According to the latest report from PwC Middle East titled “Saudi Arabia’s off-plan market: A driving force fueling a vibrant and sustainable society,” insights reveal that off-plan sales models can play a crucial role in enhancing the effectiveness and affordability of Saudi Arabia’s real estate market. This, in turn, directly contributes to the goals outlined in Saudi Vision 2030.
As part of the National Housing Program, Saudi Arabia has set a target of increasing home ownership to 70 percent from the 47 percent recorded in 2016. Achieving this objective necessitates a substantial increase in the supply of residential real estate, amounting to approximately 1.5 million housing units or 115,000 units per year. To support this goal, the Kingdom’s National Transformation Program, along with the Ministry of Municipal and Rural Affairs and Housing (MoMRAH), has introduced various innovative products and initiatives. These include market-ready units provided by real estate developers or individual owners, access to financial institutions for housing support, and the establishment of a legal framework for housing programs.
Read more: Saudi real estate, infrastructure projects top $1.2 trillion mark: Report
In a historically established property market, off-plan properties offer an opportunity for both local and foreign investors to create more affordable housing options, thereby contributing to the Kingdom’s GDP. Off-plan sales can also stimulate growth in the banking sector by generating financial solutions that cater to different beneficiary segments. Additionally, they can stimulate growth in the real estate brokerage market and encourage multiple purchases from investors.
A key driver of the National Housing Program
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 Programme. It has been a key factor in accelerating the process of home ownership, increasing 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.”
In recent years, there has been a significant increase in off-plan property sales in the Kingdom, with a remarkable 52 percent growth in the first half of 2023 when compared to the same period in 2022. This surge in off-plan sales has made it increasingly feasible for a new generation of Saudis to become property owners. The Kingdom’s real estate market has undergone substantial changes to facilitate this shift, including the establishment of comprehensive and transparent regulations, fostering stronger collaborations between public and private sector entities, and empowering developers. These efforts aim to bridge the gap between the supply and demand for residential housing. However, it is important to note that off-plan sales are still a relatively new concept in the country, and certain challenges such as the lack of clear regulations, limited awareness, and issues of trust need to be strategically addressed for successful implementation.
Marketing & product positioning
One such obstacle is the cultural preference for ready-made units, as many buyers in Saudi Arabia favor tangible products over waiting for properties to be completed in a few years. Overcoming this challenge requires a cultural shift towards embracing off-plan sales, which can be facilitated through effective marketing strategies that raise awareness among local consumers and implement appropriate pricing strategies.
Location
Another challenge is the location of off-plan sales projects, as they often face difficulties 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 to attract buyers.
Rising interest rates
Rising interest rates, particularly in 2023, have also had an adverse impact on 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 in navigating this challenge.
Shortage of developers
Furthermore, 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 attract more regional real estate developers and provide support and training for local Saudi developers.
Quality assurance
Quality assurance is another concern for buyers, as they often rely on developers’ promises and marketing materials. 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 noted.
By implementing strategic measures to overcome the challenges, the full potential of off-plan sales can be unlocked, making a significant contribution to the goals of Vision 2030 and fostering a strong and collaborative real estate ecosystem in the Kingdom.
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