Other reasons include the unprecedented support of the government for its nationals to build their own houses and apartments, and the high population growth rate which at present stands at 3.5 percent per annum. According to a recent report released by the ministry of planning, the current population, which exceeds 22 million, is expected to reach 80 million by 2020.
Real estate is the fastest growing sector in Saudi Arabia with more than SR1 trillion in investments with the result that many Saudis prefer real estate as a secure investment.
Professionals in the Saudi real estate market affirm that the capital invested in this sector runs into billions of riyals and is likely to go up in the light of phenomenal growth and development the sector is witnessing.
Research and field studies estimate that the Kingdom will need four to five million housing units by 2020 to meet growing demands. To satisfy this demand, it is estimated that around SR117 billion is required to be invested annually in the real estate sector. In order to build these houses and apartments, approximately 110 million square metres of suitable land will be required. Based on the recent market prices, the cost of this land alone will be around SR10 billion. This situation provides a unique opportunity to local businessmen and also those from the GCC to invest in this lucrative market as the investment will yield good returns in the medium and long term.
The real estate boom is accompanied by rising prices. In recent months, real estate prices in Riyadh have increased by 40 to 90 percent, but analysts said that property prices in the Kingdom are still the lowest compared to neighbouring GCC countries.
According to the Arabic daily Al Eqtesadiyah, the price for a square-meter of land in the capital ranges between SR400 and SR4,000 while building costs range between SR1,000 and SR2,500 per square metre.
Suleiman Al Amri, chairman of a real estate company, said he believed that real estate prices in the Kingdom were much lower compared to neighbouring countries. "This indicates that real estate prices in the Kingdom are still normal," he added.
Al Amri said that 70 percent of Saudis living in the city still do not own a house, which will increase demand for real estate for building houses.
He called for suitable solutions for housing problems in the country, and called for rules and regulations that support investment in the sector.
He said it was "really frightening" as in some areas of Riyadh real estate prices have increased by 90 percent.
He stressed the need for more companies to build housing units. "Many people are still seeking villas and flats instead of purchasing land," he said.
Abdul Aziz Al Jaad, a member of the real estate committee at the Riyadh Chamber of Commerce and Industry, agreed that real estate prices in the city were rising gradually as a result of demand.
"Real estate owners are now selling land to developers rather than individuals," he said, and added that the tremendous hike in prices would discourage many Saudis from purchasing land. "They will wait until the prices come down," he said.
Ali Al Fowzan, director general of a real estate office, said there is big demand for real estate to construct houses, offices and other projects. "The increase in real estate prices could be found all over the Kingdom, not in Riyadh alone," he said.
The rise in real estate prices has also reflected in rents for offices in Riyadh and other parts of the country.
Many small businesses have been closed down as a result of a 35 per cent increase in rents as their owners thought it was better to close than suffer losses.