DUBAI: About 28 percent of the homes supplied in the Saudi capital Riyadh over the past 18 months are vacant as homebuyers find them unaffordable, Colliers International said on Monday.
"The real challenge lies in translating potential demand into accommodated demand … supply delivery and absorption are restrained due to current affordability conditions," Colliers said in a report.
There is a shortfall of around one million housing units in Saudi Arabia, the largest Arab economy with a population of 27 million, the report said, citing government sources.
With the mortgage market representing only 2 percent of the gross domestic product of the top oil exporter, mortgage credit is limited, making affordability more difficult for low and middle-income earners.
"Developers continue to show bias towards developing mid to high-income housing units. This has created a large pool of untapped demand for low-cost housing."
The Gulf state’s real estate market has been waiting for the introduction of a new mortgage laws that are expected to address the ability of lenders to foreclose non-performing mortgages.
"The mortgage law is meant to organize the market but it will not change everything," Imad Damrah, country director of Colliers International for Saudi Arabia, told Reuters.
"The law will increase affordability of buyers in the Saudi market but if land prices keep going up, it’s of no use," he said.
With no clear indication on the timing of implementation of the new mortgage law, developers are mainly targeting cash buyers.
To address the housing shortage, the government has increased its budget allocation for construction of homes by nearly 53 percent over the previous plan.
The report said that Riyadh’s housing supply pipeline also shrunk in 2010 due to tight construction credit and consumer caution during the recent slowdown, with no new large-scale residential projects announced over the past year.
A similar situation prevails in the Red Sea port city of Jeddah where the immediate housing demand stands at over 283,000 units, said Colliers.
"A sizeable proportion of this demand (54 percent) is for replacement housing to accommodate the population who are inadequately housed in unplanned settlements. This highlights the need for affordable housing units suitable for low and middle income residents," said the report.
Demand for retail space is also growing and is expected to reach over 1.9 million square meters (20.5 million sq ft) by 2015, Colliers said.