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Saudi Arabia seeks to diversify economy to secure high yields across all economic platforms

 

Saudi government’s plans are aimed to remove negative practices and develop fundamental solutions to optimise real estate sector performance

 

Non-oil revenues double over past two years to SAR 200 billion

The finance, real estate and energy sectors are the key drivers of the Saudi Arabia’s economic growth and prosperity. Current research studies point out that the future strategy of the Kingdom fundamentally relies on these sectors which will continue over the coming period to be the centrepiece of the government’s focus, creating the momentum needed to accelerate the achievement of aspired objectives.

In its weekly real estate report, Al Mazaya Holding highlighted that Prince Mohammed Bin Salman’s ascension to power as the Saudi Crown Prince will reflect positively on the local and regional levels, particularly with regards to the oil sector. The Saudi Crown Prince will chart a strategic path for the Kingdom to wean its economy off oil as the main engine of the local economy.

The report mentioned that the Saudi economy boasts enormous potential that will help it achieve many of the ongoing plans, adding that the reliance on one mere source of economy can’t ensure economic stability and improvement at the medium – or long – terms as diversification of economic sources is the only way to secure high yields from diverse economic platforms.

The fast-paced and discrete political developments taking place inside the ruling regime in the Kingdom of Saudi Arabia are likely to reflect positively on the Kingdom at large and extend benefits to the Middle East region in its entirety thanks to the ambitious plans led by the Saudi Crown Prince which are primarily based on increasing oil prices and stabilising the energy market by ensuring a balance between market forces – demand and supply – and revitalising investments. Current data points out that non-oil resources have doubled over the past two years to SAR 200 billion, with the budget deficit still below previous forecasts and reportedly would never exceed 30 per cent of the total revenues, with the government seeking to decrease unemployment to less than 7 per cent.

The report referred to the congruous relation now being created between the private and public sectors in Saudi Arabia where roles and responsibilities are reciprocally exchanged in a way that serves the overall plans and strategies, given the fact that the Saudi economy used to be run by state departments only, without real distribution of roles and responsibilities among other players, therefore, falling short of best international practices followed by highly developed countries.

At present, the private sector in the Kingdom is required more than ever before to assume real roles under the Saudi Vision 2030. The sector has to be part and parcel of all long-term development enterprises and a major driver for accelerating the non-oil gross domestic product. Under this vision, the private sector’s contribution to the GDP should jump from 40 per cent to 65 per cent, with small-scale establishments’ contributions to increase from 20 per cent to 35 per cent, which entails an accelerated launch of new investments by the private sector across all economic platforms, particularly the essential ones which are known for their slow growth and decelerated returns.

The report highlighted the potential positive impact the latest political developments in Saudi Arabia would have on the economy, particularly with regards to the property sector which is still coming under strong headwinds and deceleration despite all the measures introduced by the Saudi government that aim to remove all negative practices and develop fundamental solutions to several challenges, including provision of financial support and loans to Saudi nationals for streamlining their property ownership.

In the meantime, development plans are ongoing on a regular basis, with current data indicating a significant increase in under-construction property developments which amounted to SAR 940 billion, a 33 per cent of which is claimed by the energy sector, a 9 per cent by the construction sector and a 27 per cent by the transportation sector, whereas studies are under way to evaluate the progress achieved hitherto in implementing government-run companies’ privatisation stages.

The report mentioned that the public and private sectors in the Kingdom presently target three primary areas at the real estate market. Residential units is on top followed by office spaces and then the leisure and hospitality sector. The government now focuses its efforts on developing efficient regulations for the residential sector, including enforcement of the Unified Lease Contract issued in February 2017 which is aimed at accelerating development of more residential units, creating an investment-conducive environment and boosting consumer’s confidence in the housing sector, as low-cost residential units are still the favorites option for all segments of society.

In the meantime, the report highlighted a 9 per cent drop in rentals during the Q1 2017 following the government’s announced plans to launch more than one million apartments at easy loans as part of its housing programme which is due to be up for grabs by the Q3 this year. Office spaces retained their activity and even recorded growth following the noticeable demand from the healthcare sector, said the report, adding that government projects to develop the leisure sector are expected to continue, with more of such developments projected to be launched over the coming period, including shopping centres, to revitalise the trade and visitors’ movement.

The report also shed light on the challenges met by the Saudi property market during the H1 2017, primarily shortage of liquidity, which pushed the volume of real estate transactions down by 10.7 per cent, with property trading value during the H1 down by around 39 per cent to SAR 46.7 billion from SAR 75 billion last year – figures that reflect a liquidity crunch and demand deceleration.

The report concluded by affirming that the fast–paced developments witnessed in Saudi Arabia are likely to create a momentum toward the financial and economic sectors, with the Crown Prince Mohammed Bin Salman’s ascension to powers expected to secure a gigantic leap in the financial and economic performance overall.