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February 9, 2018

Investors are getting to grips with new opportunities in the Kingdom of Saudi Arabia (KSA) after a raft of radical reforms, announced last year, paved the way for economic and real estate growth.

A forecast from Oxford Economics predicts a return to positive real GDP growth in the Kingdom in 2018, following a minor contraction in 2017. This is the result of several measures taken by the government to bolster the economy.

While some reforms have direct implications for the real estate market, others will indirectly offer investors new opportunities.

“We embraced the transitional phase of the economy in 2017, in line with the National Transformation Program and the Saudi Vision 2030,” said Eng. Ibrahim Albuloushi, Country Head, KSA, JLL.

“The year ahead focuses on the implementation phase of the reforms, highlighting growth in the tourism sector where the hospitality and retail sectors are poised to benefit, as the government eases visa requirements for tourists,” he added.

Attracting a new type of tourism
Throughout last year, the Kingdom implemented measures to support tourism, which it hopes will provide a steady source of economic growth outside of the oil industry.

The 34,000 square-kilometer Red Sea Tourism Project topped the list as the Public Investment Fund’s most ambitious initiative to diversify the sector from its current reliance on business travelers and pilgrims.

The Maldives-style tourist destination hopes to attract a million visitors by 2035, and will allow most nationalities to enter without a visa. This announcement was followed by the introduction of a KSA tourist visa, which will come into place in Q1 2018.

Expanding the Kingdom’s entertainment sector, will deliver investors opportunities across the hotel and retail sectors, too. And, if ever there was indication that the Kingdom is serious about elevating its credentials as a business hub, the 500 billion USD special zone, which will span three countries (KSA, Jordan and Egypt), is it.

Sitting on the Red Sea coast – a major trade route – the NEOM special zone, if successful, will become a major draw for people, businesses and, therefore, investment.

“NEOM will offer an abundance of investment opportunities and an independent legislature favourable to investors to compliment it,” said Albuloushi.

“NEOM not only hopes to attract foreign investment but also retain investment locally by providing an alternative investment option.”

Diversifying the economy
In addition to reforms designed to diversify the economy, the government took targeted economic measures to reduce the deficit – introducing two bonds – and inject liquidity into the market.

A SAR 72 billion stimulus package, which will waive fees for small business and investors, was introduced to boost private sector growth and, in turn, it’s expected to support housing construction; a critical outcome if the government is to achieve a separate ambition to raise home ownership levels to 52 percent by 2020. The Saudi Real Estate Refinance company launched in October 2017 to facilitate this. A joint initiative between the PIF and the MOH, it’s expected to raise demand for financing by as much as 79 percent by 2026.

Meanwhile, the much-publicized White Land Tax reform appears to be having the desired effect in freeing up land for development. The policy, announced last year, has spurred an uptick in development interest and land prices have fallen by some 18.5 percent on average.

And, in a move that will benefit both investors and developers, eight REITs listed on the Saudi Stock Exchange in 2017 and 2018 will see at least five more.

‘Year of transition’
If 2017 was the year of transition, 2018 looks set to be the year of implementation as investors, entrepreneurs and businesses explore new opportunities. In perhaps one of the most internationally publicized moves to modernize the Kingdom’s economy, the landmark decision to lift the driving ban on women will not only serve as a shot in the arm for the auto industry; it sent a signal to the investment community that Saudi Arabia ready for a new phase of growth.

However, headwinds remain in the short term, warns Albuloushi: “The increase in fuel costs and the introduction of VAT could lead to the cost of goods and services increasing,” he said.

“As a result, the market is expected to be volatile in the short to medium term.

“Longer term, these reforms represent a key move towards improving transparency and the Kingdom achieving its ambition of developing international partnerships.”

Click to read more about real estate investment in the Middle East.

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Eng. Ibrahim Albuloushi

Country Head, KSA, JLL

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