Nasser, 34, has been engaged for the past seven years. His job as a car salesman in the Saudi capital earns him SR5,000 a month. When sales are good, he can make up to SR4,000 riyals a month on top of that. He should be married and enjoying his life, he said, clean-shaven and stocky in his traditional white thoub and headscarf.
There’s a problem, though. Nasser does not own his own house and until he does his fiancé’s father insists that there will be no wedding. “Not an apartment, a house,” said Nasser. “He doesn’t like his daughter or her visiting sisters and mother to have to share a building with strangers; the neighbors, he means.”
For a short time the couple wondered if they should live with Nasser’s parents. “But the first question a future father-in-law asks you is: ‘Do you have a house’? It’s not like before, you only needed a job, and before that you only needed to be a good Muslim,” Nasser said.
Much of the housing problem is rooted in the country’s fast-changing demography. Fuelled by a big rise in the number of foreign workers, the country’s population grew almost 20 percent to 27.14 million between 2004 and 2010, according to a recent census.
The number of houses simply can’t keep up. In total, the country has a deficit of two million housing units, a figure that’s rising by some 150,000 a year, according to independent economist Saud Jleadan.
Industry experts including private Saudi-based mortgage lender Real Estate Financing Co. (Refco) and US consultancy Clayton Holdings estimate that just 30 percent of Saudis now own their home. That’s down from more than half 20 years ago according to some estimates and a striking symbol of the uneven distribution of wealth in the world’s biggest oil exporter.
Could the lack of houses one day lead to social unrest?
Nobody’s going that far yet. But in a report issued in late July, state-owned National Commercial Bank said that rapid population growth and the huge number of young Saudis, two-thirds of whom are under 30, are “exerting enormous pressure on the country’s infrastructure, while creating social and economic imbalances”. The housing challenge, says John Sfakianakis, chief economist at Banque Saudi Fransi, is “undeniable.”
The crisis would not exist if Saudi Arabia had better developed mortgage and secondary real estate markets.
Banks do extend loans to wealthy Saudis. Indeed, contrary to popular belief, commercial banks even charge interest, while Islamic banks get around the Islamic Shariah ban on interest by charging a set fee or agreed profit margin on a loan.
Crucially, though, Riyadh is yet to pass legislation to regulate mortgage lending, and in particular what should happen if a borrower defaults.
That leaves banks reluctant to lend more widely and forces average Saudis to rely on the state-run Real Estate Development Fund (REDF), which offers Shariah-compliant, interest-free loans.
But REDF can only do so much. In 2008, barely 8 percent of Saudis who built new homes relied on the body, according to a spokesman. Critics say the government underfunds the agency, while the spokesman said a “substantial rate of default” hurts efforts to loan more money.
Even if it did loan more, people like Nasser might still miss out. The secondary market for residential property in Saudi is small; anyone in the market for a house often builds their own. But REDF does not lend money to build until a would-be mortgagee owns land to build on. The organization does not lend money to buy land.
With both finance and land so tight, and demand growing fast, it’s little wonder that housing is in such crisis. Mortgage lending makes up just 1 percent of gross domestic product in the Kingdom according to Deutsche Bank. That compares with “well over 50 percent in most developed countries, and approximately 6 percent in Kuwait and 7 percent in the UAE.”
Only just over a quarter of the 165 billion riyals ($44 billion) spent on construction in Saudi Arabia in 2009 went to residential units according to the National Commercial Bank report. “Residential expenditure has been declining steadily over the past five years.”