دار مشاريعاالركان

Kingdom of Saudi Arabia Housing Crisis

January 2010

PART 1 Introduction to Meeting the Growing Housing Demand

Is there a Crisis on the Horizon or is it already Here!

The Demand Keeps Growing!

1. In 2008 the projected demand for new affordable housing was 65,000 units per year for the next 10 years.

2. In the 3rd Q of 2009 the projected demand rose to 1.2 million units over the next 10 years, almost double the prior projection (120,000 units).

3. In the 1st Q of 2010 the latest projection is 2.62 million units by 2020, again doubling the prior projection (262,000 units).

1) How is the growing demand going to be met?

2) Currently almost all of the construction activity is Commercial, one time, lump sum contracts!

3) Where is the production home building company with an on going construction process of even flow deliverables?

Saudi Arabia Housing Facts

Saudi Arabia Housing

A new real estate mortgage company is to receive a large slice of funding from the state's Public Investment Fund (PIF).Around 20 per cent of the two billion Saudi riyals ($533 million) capital being used to start the firm is being put up by PIF – its largest-ever investment in a mortgage company, reports the Saudi Gazette.Further investors are being sought for the new company, which is being set up by the Islamic Corporation for the Development of the Private Sector (ICD), a member of the Islamic Development Bank.The investment deadline is the end of this month, after which time the new real estate lender will establish offices in Jeddah, Dammam and Riyadh.

Saudi Arabia Housing

Last week, Mohammed Al-Jasser, governor of the Saudi Arabian Monetary Agency, told Arab News that a new mortgage law, which will make it easier for people on lower incomes to be approved for property loans, is set to be introduced within the next few months.

Data is from a Cityscape Intelligence article Jan 2010.

Saudi Arabia Housing Demand

Real estate investments in Saudi Arabia will reach 484 billion Saudi riyals ($129 billion) by 2013, it has been forecast. According to Fahad Al-Sultan, secretary general of the Council of Saudi Chambers, the statistics mean that real estate is now the second most important sector for Saudi Arabia after the oil market, reports Arab News. "It has 92 related active industries linked to one another in the sector. It contributes about SR55 billion to the national gross domestic product of the Kingdom," he said. Mr. Sultan added that the gross national profit made by the real estate sector in Saudi Arabia had risen by 50 per cent between 1999 and 2008.

Saudi Arabia Housing Demand

He forecast further growth, noting that an additional 2.62 million homes need to be built in the state by 2020. That's 262,000 per year, for the next ten years.

Last month, Saudi Arabia re-introduced a five per cent levy on steel and cement imports in a bid to address an oversupply of the two materials in the domestic market.

Data is from a Cityscape Intelligence article Jan 2010.

Company Overview/ Business Plan

The standard construction proforma in the U.S., is projecting or forcasting, ahead 1 to 5 years. The top five residential builders in the U.S., all use a similar proforma and produce a combined total of 200,000 plus units each year. The top five construction companies have been in business 40 to 60 years, and are still in business to date.

Construction activity, cycles approximately every ten years, from slow to moderate to a high level of total units delivered. The 5 year projection is for location and potential land acqusition, at the 3 year stage, planning and infrastructure are beginning, and finally at the 1 year stage vertical construction is scheduled to begin.

Top Five US Construction Companies

Builders Completed Unit total for 2005

D. R. Horton 51,383Pulte Homes 45,630Lennar Corp. 42,359Centex Corp. ` 37,022KB Home 31,009

Combined Total: 207,403

Company Overview/ Business Plan

The initial number of projected units will vary, based on the construction company's size, financial backing, marketing/ sales strategy and consumer demand. The initial proforma, starts with an annual target of deliverables, based on an average construction cycle time. For example, start the process at the beginning of the year, cycle time will be 4 month's (start to finish), and the release rate will be 2 starts per day, based on a 5 day work week, and 4 weeks per month. At this rate, I can acheive 8 construction cycles in a 12 month period. This will produce 350 completed units, and 170 under construction, in the 12 month projection ( 2 x 5 x 4 x 8 ).

Next Slide Brief

Spreedsheet is showing:

First Year Projections

Varied Number of Starts per Week

Construction Cycle Time- 4 and 7 month Duration

Ending Total: Starts and Deliverables for the First Year

Month 1 St Wk 3 St Wk 5 St Wk 10 St Wk 25 St Wk

January 5 15 25 50 125

Feburary 4 12 20 40 100

March 4 12 20 40 100

April 4 12 20 40 100

May 5 15 25 50 125

June 4 12 20 40 100

July 5 15 25 50 125

August 4 12 20 40 100

September 4 12 20 40 100

October 5 15 25 50 125

November 4 12 20 40 100

December 4 12 20 40 100

1st Year ProjectionsTotal Starts: 52 156 260 520 1300

Deliverables4 month cycle 35 105 175 350 875

Deliverables7 month cycle 21 63 105 210 525

Start Up/ Year One

20102011

2012Total

0

100

200

300

400

500

600

700

800

900

1 Villa/Week

3 Villas/Week

7 Villas/Week19 48

48 115

57 144144

345133

336336

805

Villas Delivery per Year: Villa Duration = 4 Months

Nos

of V

illas

20102011

2012Total

0

100

200

300

400

500

600

700

800

1 Villa/Week

3 Villas/Week

7 Villas/Week7 48

48 103

21144

14430949

336336

721

Villas Delivery per Year: Villa Duration = 7 Months

Nos

of V

illas

Construction Company Strategy

All units are pre-sold, a rule for most companies, is not to have more than 10% of all units under construction as inventory.

Example: If there are 10 units under contract you will release 1 additional unit to be constructed as a inventory or spec unit.

This is done to capture sales of potential customers who may not have the desire or time, to go through the entire construction process.

Total Market Research/ Strategic Market Analysis

TMR- is performed to determine areas for development and improvement, and the types of residential and commercial needs, in a given geographical area.

SMA- is performed to determine the product selection and price range of potential buyers, and the type of product that will suit a given geographical area.

Major Focus is on Providing Affordable Housing

1) 88 to 92 percent of home buyers are in the starter or affordable housing price range- $ 95,000.00 to $ 130,000.00 (SR 356,250.00 to SR 487,500)

2) 6 to 8 percent of home buyers are in the step up or step down price range- $ 150,000.00 to 325,000.00 (SR 562,500.00 to SR 1,218,750.00)

3) 2 percent are in the high end or custom home price range- $ 400,000.00 and up (SR 1,500,000.00 to SR 50,000,000.00)

Part 2The Process Begins

To be posted in the near future