PwC Middle East’s most recent report, “Saudi Arabia’s off-plan market: A driving force fueling a vibrant and sustainable society,” offers valuable insights into how off-plan sales models can contribute significantly to the efficacy and affordability of the country’s real estate market. This in turn helps to achieve the objectives listed in Saudi Vision 2030.
Saudi Arabia has set a goal to increase homeownership from the 47 percent recorded in 2016 to 70 percent as part of the National Housing Program. To meet this goal, there must be a significant increase in the supply of residential real estate, roughly 1.5 million units annually, or 115,000 units annually. The Kingdom’s National Transformation Program and the Ministry of Municipal and Rural Affairs and Housing (MoMRAH) have launched several cutting-edge programs and products to help achieve this aim. These consist of ready-to-move-in units from developers or private owners, financial institution access to housing assistance, and the creation of a legislative framework for housing initiatives.
Off-plan properties present a chance for both domestic and foreign investors to provide more affordable housing options in a historically established real estate market, boosting the GDP of the Kingdom in the process. Off-plan sales, which produce financial solutions tailored to various beneficiary segments, can also spur growth in the banking industry. They can also encourage investors to make multiple purchases and grow the real estate brokerage industry.
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.”
Off-plan property sales in the Kingdom have increased significantly in recent years; in the first half of 2023, they grew by an astounding 52% when compared to the same period in 2022. A new generation of Saudis is finding it more and more possible to become property owners thanks to this increase in off-plan sales. To enable this transition, the real estate market in the Kingdom has experienced significant transformations. These include the implementation of all-encompassing and lucid regulations, the cultivation of more robust partnerships between public and private sector organizations, and the empowerment of developers. The goal of these initiatives is to close the gap between the supply and demand of single-family homes. Off-plan sales are still a relatively new idea in the nation, so it’s vital to keep in mind that there are still some obstacles to overcome before they can be successfully implemented. These include unclear regulations, low awareness, and trust issues.
Marketing & product positioning
One such barrier is Saudi Arabian consumers’ inclination toward ready-made units due to cultural norms; they prefer material goods over waiting for properties to be finished in a few years. A cultural shift toward accepting off-plan sales is necessary to overcome this obstacle, and this can be achieved by implementing appropriate pricing strategies and employing efficient marketing techniques that increase consumer awareness locally.
The location of off-plan sales projects presents another difficulty because they are frequently located far from city centers and necessary services. In order to draw in buyers, developers must understand how important it is to be close to services, transportation, schools, and other facilities.
Rising interest rates
Increases in interest rates have also hurt off-plan sales, especially in 2023. The housing market is slowed down by higher interest rates because banks may find it difficult to meet the financing needs of several projects, which poses a liquidity issue. Navigating this challenge requires finding a balance between financing demands and liquidity.
Shortage of developers
Moreover, Saudi Arabia is confronted with a scarcity of developers possessing the requisite expertise and experience to match the rapid advancement of Vision 2030 goals. To address this, the Kingdom should draw in more regional developers of real estate and help and train Saudi Arabian developers locally.
Buyers are also concerned about quality assurance because they frequently rely on the promises made by developers and promotional materials. Project completion and handover delays further erode investor returns and client confidence. It is crucial to put in place strong quality assurance procedures and deal with the things that cause delays in projects, like building problems, delays in obtaining permits, and shifts in the market.
“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.
The full potential of off-plan sales can be realized by taking calculated steps to overcome the obstacles, which will significantly advance Vision 2030’s objectives and strengthen the Kingdom’s cooperative real estate ecosystem.