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					                                                 ‫‪Real estate sector‬‬
‫تـرخـيص هـيـئة السـوق املـاليـة رقــم 01060-73‬
                                                                                        1. Investment Summary
TABLE OF CONTENTS                                                                       We initiate coverage of the Saudi Arabian real estate sector with a positive outlook/low risk
                                                                                        rating. The macro fundamentals are attractive and will support growth of real estate sector
1.     Investment Summary                                                          3    over the long term. A booming economy, favorable demographics like rising income, a young
2.     Sector Trends                                                               3    population, emergence of nuclear families, and increased corporate activity will benefit the real
2.1.   Residential Segment – Long term bullish                                     3    estate developers.
2.2.   Commercial segment                                                          3    We are positive on the residential segment…
2.3.   Retail segment                                                              3    The residential segment would be the key beneficiary of the changing macro-economic sce-
2.4.   Economic Cities: Real Estate Marvel                                         3    nario in Saudi Arabia. A vast difference exists between the current demand and supply, which
3.     Robust long term macro drivers make sector attractive                       3    has been increasing over the last decade. Moreover, increasing income due to a booming
3.1.   Scale of development is unprecedented - driven by petro-dollar economic boom 3   economy has boosted purchasing power, and has bought residential units within the reach of
3.2.   Demographics point towards accelerated real estate demand in the next decade 3   middle income segments. Key policy changes like the “New Mortgage Law” will further boost
3.3.   Fast growing population – Means huge real estate potential                  3    affordability and increase demand.
3.4.   Declining interest rate – A catalyst for real estate demand                 3
                                                                                        And neutral on the commercial segment…
3.5.   Favorable real estate law                                                   3
                                                                                        The commercial segment will see sufficient supply kicking in during 2008. Moreover, there ex-
3.6.   Equity markets – Funding the real estate boom                               3
                                                                                        ists a mismatch between the types of offices buyers would prefer and existing office spaces
3.7.   Government focus towards providing affordable residential housing           3
                                                                                        that are available. Not all real estate developers are permitted to develop high rise buildings,
4.     Valuation and Performance of GCC Realty                                     3
                                                                                        which are not permitted to be constructed beside a few locations. Against such a backdrop, the
5.     Key Investment Risks                                                        3
                                                                                        only positive for this segment is the demand which is expected to sustain and perhaps even
                                                                                        grow, as existing businesses grow, new start ups emerge and foreign players set base in the
                                                                                        kingdom.



                                                                                        Valuation
                                                                                        GCC real estate stocks had a market capitalization of nearly US$99.49 billion on 22nd July
                                                                                        2008. UAE, naturally (Dubai and Abu Dhabi), forms nearly 40% of the total GCC real estate
                                                                                        sector market capitalization, The industry average P/E for the GCC region stands at 20.1x
trailing twelve months. Saudi Arabia is trading at a premium against its peers, indicative of the   with land due to the inability of borrowers to pay up. At the same time, we note that increasing
investors’ growth expectation from the Saudi real estate.                                           foreign competition in the banking sector and changing real estate laws are encouraging sig-

Key investment challenges                                                                           nals, which might lead to banking sector keeping a softer stance towards the realty industry.

Real estate sector growth would be driven due to a large unmet demand for housing and com-          2.1. Residential Segment – Long term bullish
mercial spaces in the country. Demand side factors are unlikely to act as a key risk to real es-    The scope for residential development in Saudi Arabia remains substantial. The country’s
tate growth, unless serious economic downturn occurs. The factors that may hinder the pace of       population stood at 24.3 million in 2007, and would grow at over 2% p.a. till 2015. The segment
development would most likely be supply side related. Rising construction costs, skilled labor      also forms nearly 75% of the country’s real estate market by value, according to Dar Al Arkan
shortages, project delays and excessive speculation resulting in demand destruction may re-         Real Estate Company. On the basis of building permits, housing forms 91% of the entire real
sult in revaluating the positive outlook on this sector.                                            estate market. Also, it provides the maximum potential for real estate development projects.
                                                                                                    The residential segment will be driven by domestic demand, unlike its neighboring nations
2. Sector Trends                                                                                    UAE (Dubai and Abu Dhabi), where most residential units are purchased for investments or
 The Saudi real estate and associated sectors have formed more than 12% of the real GDP             speculative purposes. Moreover, Dubai and Abu Dhabi are attracting expats for investments
over the last decade. A booming economy has increased income levels, resulting in improved          whereas the residential segment boom in Saudi Arabia is being driven by the local population.
demand for residential units, which already outstrips supply owing to a fast growing population.    The traditional family in Saudi Arabia is large in size, having on average, 7-15 kids per family.
The commercial realty space too has benefitted owing to increase in corporate activity, result-     Moreover, the social structure is changing, with nuclear families starting to emerge. As this
ing in more demand for corporate offices and industrial units.                                      young population starts earning, demand for residential units will increase substantially. Also,
Real estate sector has really taken off since 2006, the same year when the stock markets            most of the demand is expected to come from the low and middle income segment. Residential
experienced a meltdown. Our discussion with real estate experts suggest that prices have            units demand will also increase owing to poor land laws, due to which people don’t rent out
been doubling every year since then. Pre-stock market bubble of 2006, the Saudi population          homes. As a result, people end up buying their own homes.
was channeling most for their funds into the stock market. So much so, people were taking
loans against property to invest in the stock market. Once the stock market bubble got pricked,      Demand outstrips supply
the funds are now getting channeled into the real estate sector. The entry of large real estate     Real estate developers would have sufficient demand and oversupply scenario is unlikely to
developers like Emaar and Deyaar into Saudi Arabia is also strengthening the case for Saudi         emerge, at least over the next 5 years. Saudi Arabian government, in its 7th development plan
realty.                                                                                             (2000-2004), provided 0.3 million housing units (complete and under construction), despite
However, certain concerns remain. Financing for real estate development is not easily avail-        which the country faced a shortage of 0.27 million housing units in 2004. Over 2005-09, new
able in Saudi Arabia. Banks have had a bad experience in this regard, where they were left          and replacement demand would be 2.43x the housing units provided in the 7th development
plan. Moreover, in the last three development plans, the housing units availability has aver-   12% and 15% of total houses, which is relatively high, compared to the normal rates of 3% to
aged 0.33 million units.                                                                        5%. This indicates that the housing units in excess supply are beyond the purchasing power of
                                                                                                large segments of the population.
                                                                                                Around 4 million housing units in the country can be classified into the following main types:




                                                                                                Going forward, the regions that are expected to witness the highest real estate activity and
                                                                                                demand for housing would include Riyadh, Eastern Province and Makkah, which together
                                                                                                account for 64% of the total population. The government has embarked on the process of
                                                                                                developing small and medium-size towns in these regions, which shall become development
                                                                                                centers and accelerate regional progress. The aim is to reduce regional disparity and migration
                                                                                                to major cities.




According to Ministry of Economy & Planning, house ownership declined from 65% under the
6th Development Plan (1995-99) to 55% under the 7th, due to lack of real estate financing op-
portunities and insufficient loans provided by Real Estate Development Fund (REDF). Hence,
the demand supply gap was widened further.
The segment for which real estate supply is available, does not match the demand profile. As
per the Ministry of Economy & Planning, the percentage of unoccupied houses ranges from
Prices to remain firm…                                                                                ing the demand for office space. While there is modest demand for commercial space, the
Structurally, all real estate growth drivers indicate towards an increase in prices of real estate    location preference is concentrated in a few areas. Discussions with real estate specialists
in the country. However, due to lack of central registry, ascertaining the price levels of property   reveal that the current supply of real estate albeit available, lacks the desired quality which is
in various regions becomes difficult. On discussion with experts in the real estate sector, we        preferred by multinationals. Only a few locations like King Fahad Road are allowed to have
infer that the low-middle income segment of the population is capable of buying Villas/Duplex,        high rise buildings and have the preferred type of office construction that multinationals prefer.
which fall in the range of SR2-2.5 million. The prices for land are in the range of SR1000/sqm        Other locations have 2-3 floor offices that are non-glass structure, and are not preferred by
in Riyadh, while in the 500 meter surrounding radius of Makkah, prices range from 3000-4000/          large corporations. Moreover, not all real estate developers are permitted to construct high-rise
sqm.                                                                                                  buildings. However, entry of large real estate developers should ensure quality supply of com-
As per Dar Al Arkan real estate company, the average price of an affordable residential unit of       mercial spaces in future.
150 square metres stood at SR400,000 in 2007. Prices for villas usually start at SR1 million.
House prices are estimated to have risen at CAGR13.7% from 2002-2005.
The Riyadh region’s initial yields in 4Q2007 was in the range of 6.0% to 9.5% and annual rental
rates were from 30-75 US$/m2.




                                                                                                      Owing to growing demand, large supply of commercial offices has come on-stream in 2008.
                                                                                                      Moreover, the office space supply has been increasing over the years, as is evident by the
                                                                                                      increase in vacancy rates over time across the GCC. Still, Saudi Arabia’s prime hubs like
                                                                                                      Riyadh remains relatively underpriced as compared to the Dubai, the CBD of UAE. There is a
                                                                                                      stark difference in the land prices of suburban areas in Saudi Arabia, when compared to UAE
2.2. Commercial segment                                                                               as well. As the economy develops, the difference in land prices between these regions should
The increase in commercial operations owing to a booming economy has led to an increase               reduce. Moreover, Saudi Arabia matches UAE in terms of capitalization rate/Initial yield (an-
in the demand for commercial real estate. Expansion of existing companies, setting up of new          nual rental income/ market value or purchase price), making it an equally attractive investment
local companies and entry of international firms has been responsible for the surge for com-          destination.
mercial spaces in the kingdom. Moreover, the usage of villa for running businesses has been
disallowed by the government, which was traditionally used by businessmen, further increas-
                                                                                                    of 2.5 million sq. m. by 2007 end, against 2.1 million sq. m. in Jeddah, 1.7 million sq. m. in Du-
                                                                                                    bai, and 0.83 million sq. m. in Abu Dhabi. Despite having the highest GLA in 2007, the GLA per
                                                                                                    capita remains low, providing ample scope for further development. Moreover, development of
                                                                                                    retail space is mostly taking place in Riyadh and Jeddah. As per a zawya article, mall space in
                                                                                                    the country is expected to reach 6.95 million sqm in 2 years from 2007, representing a 350%
                                                                                                    increase in GLA.
                                                                                                    The retail space attracts the highest rentals as compared to other segments, often owing to its
                                                                                                    location in prime areas. Rentals have been growing at 15-20% since 2005 in the retail spaces
The office rentals growth in Riyadh’s CBD was 69.2% in June 2006-07, higher than the growth         located at prime locations. However, these increments are in existing leases, and new leases
registered in the CBD’s of Abu Dhabi (15.5%), Dubai (25.9%) and Doha (55.8%). The steep             being signed for retail spaces command much higher rent. In 4Q2007, depending on location
rise in rentals was reflective of the interest that investors had in the Saudi economy. Despite     in Riyadh, annual rentals for malls were in the range of US$300-800 per sq. m. The years 2005
the rise, absolute rentals in Riyadh remain at a hefty discount to Dubai, Abu Dhabi and Doha.       and 2006 had seen a sharp increase in mall spaces and Colliers expects this growth to slow
Therefore, we believe that commercial rents are set to rise much higher over the long term,         until 2010.
resulting in yield compression. As per Colliers 4Q2007, the spread between asking rent and
actual rent in Riyadh was over US$100/m2 in Class A/Primary locations. The spread was over
US$50, even for poor/tertiary locations in Riyadh, indicating strong momentum for a rise in
rentals in the commercial real estate.


2.3. Retail segment
Economic development in the kingdom has resulted in higher disposable income, driving con-
sumption and the development of large number of malls in the kingdom, and many more on
the way. A large spending oriented young population is driving development of retail outlets.
The fusion of different segments is taking place with retail spaces being developed along with
commercial and residential establishments. A shift in retail mall development has taken place       Demand for retail spaces should increase as competition increases through both, domestic
in the last few years, with developers starting to focus on larger projects like malls and hyper-   and international players. Presently, foreign players are allowed to hold 51% in local compa-
markets.                                                                                            nies. Carrefour has already established presence in Saudi Arabia, and as more players enter
According to Colliers estimates, Riyadh would have a cumulative Gross Leasable Area (GLA)           the retail sector, demand for malls will increase.
2.4. Economic Cities: Real Estate Marvel                                                            tools and spare parts imported for the manufacture of industrial products.
The economic cities would form the largest real estate project ever envisioned. This Public-        Owing to the various benefits incorporated in these cities, the prices of real estate in economic
Private-Partnership (PPP) is a part of the country’s vision to be amongst the top ten most          cities would command a premium. The recent projects launched in the KAEC city and discus-
competitive nations by 2010. Creation of these cities will involve more than 12 years in time,      sions carried out with local experts also indicate that the prices for property are at a premium.
development of nearly 400 sq. kilometers of land area and an investment of more than SR300          Moreover, it seems evident that the economic city would most likely be inhabited by expats
billion.                                                                                            and high income professionals who would be able to afford the luxurious lifestyle that has been
Six economic cities are proposed to be developed, with 2 presently under consideration.             kept in mind while planning for these cities. A recent apartment’s project launched by Emaar
These cities of King Abdullah Economic City, Knowledge Economic City, Prince Abdulaziz bin          was priced at SR7000/sqm, much above the affordability range of middle income population.
Mousaed Economic City, Jazan Economic City and two other cities currently under considera-
tion will entail an investment of more than SR300 billion by the year 2020. The first city to be
developed is the King Abdullah Economic City (KAEC). The outcome of this city’s development
shall pave the expectations of the other cities and determine the level of success to be prob-
ably achieved by this concept. KAEC will serve as a proxy for understanding the right manner
in which to value such projects, estimating reasonable timelines of completion, comprehending
the actual risks factors involved and quantifying such risks during valuation.
Certain value enhancing features incorporated by the government into these economic cities
makes them attractive real estate investments as against other property in the kingdom:
• Economic cities are allowed to have 100% foreign investment in businesses as well as real
estate unlike other regions of Saudi Arabia.
• These cities tend to be located at strategic locations resulting in higher prices per sqm, for    King Abdullah Economic City (KAEC)
instance KAEC is located near Makkah & Medina, the most populated region in Saudi Arabia,           KAEC is located in Rabegh, near Jeddah, a commercial hub. The city is located on the Red
on the cost of red sea.                                                                             Sea and 235 km from Medina. It will be developed by Emaar, The Economic City, which is
• A more liberalized environment consisting of skilled people, resulting in higher per capita       listed on the Saudi stock exchange. KAEC will house a 2 million population having 84 sqm/per
income and thus higher prices for real estate.                                                      person. The city will provide employment to 1 million people.
• Incentives for setting up industrial units will ensure job creation and increased occupation of   The city development would focus on ports, logistics, light industry and services. The city
these cities. Incentives include raw material imported for eventual re-export are exempt from       would be divided into six key zones, namely
import fees. Also, investors are eligible for customs fee exemptions on machinery, equipment,       • Sea Port: Will cover an area of 14 million sqm and contain 30 container berths. Would be
capable of handling more than 10 million 20-footy container units (TEU) per year, in addition        Prince AbdulAziz bin Mousaed Economic City (PABMEC)
to millions of tonnes of bulk and liquid cargo. The Hajj terminal would be capable of handling       PABMEC city was planned with the aim of making it the largest transportation and logistics hub
300,000 pilgrims during the Hajj season.                                                             in the Middle East. Built on 156,000,000 sqm, PABMEC will have a cluster-based development
• Industrial Zone: Will be dedicated to industrial and light-manufacturing facilities, especially    comprising of transportation, logistics and supply chain centers. The city will have an interna-
high end plastics and downstream petrochemicals and would be capable to host 2,700 indus-            tional airport, which will cater to 3 million passengers per year, and a railway station catering
trial tenants. The industrial zone will cover an area of 63 million sqm.                             to nearly 2 million passengers annually. Dry ports and operation centers will be capable of
• Central Business District (CBD): Will offer 3.8 million sqm of office space, hotels and mixed-     handling over 1.5 million tons of cargo annually.
use commercial space. The Financial District, within the CBD, would cover 140000 sqm of land         Also, the city will have a Agro – Industrial zone focused on agricultural & food processing serv-
area.                                                                                                ices, mining and processing industries.
• Sea Resort: Set up for tourists, hospitality will be a strategic component with a planned          Knowledge Economic City (KEC)
25,000 hotel rooms in more than 120 hotels. Along a 2.5 km beachfront, the resorts area will         Saudi Arabia plans on diversifying from being oil driven economy to a diversified industries driv-
provide 3.5 million sqm of built up area.                                                            en economy. To accomplish this aim, it will need a large pool of skilled personnel. To achieve
• Residential Area: KAEC will have apartments covering built up area of nearly 51 million sqm,       this requirement, KEC has been established. Moreover, knowledge based industries will be
over 150,000 units.                                                                                  established in this city as well. The city will have the following key components:
• Educational Zone: A multi-university campus designed to accommodate 18,000 students and            • Taiba Complex Technology Park will be developed to meet the technological demands of the
7,500 faculty & staff members would be developed.                                                    country.
                                                                                                     • Institutes of advanced technical studies and colleges of business administration.
Jazan Economic City (JEC)                                                                            • Islamic Civilization studies centre would address the disciplines of Islamic civilization.
JEC will be located 725 km south of Jeddah and have a population of 250,000. The focus ar-
eas in the development of this city would include heavy industries, lifestyle, agro industries and   3. Robust long term macro drivers make sector attractive
people development. The city would be divided into 6 zones including an industrial park (will        3.1. Scale of development is unprecedented - driven by petro-dollar economic boom
occupy 2/3 of the city), sea port, agriculture repackaging and distribution, fisheries, business &   The real estate sector would be one of the main drivers for Saudi Arabia’s regional economic
cultural center, and health & education areas. The industrial park will contain main projects like   growth. The scale of real estate projects announced in Saudi Arabia, like the six economic cit-
power plants, desalination plants and aluminium smelters. Certain secondary industries like          ies, is mammoth and unprecedented. Four of the six economic cities will need development of
silicon processing, textile, food processing, pharmaceuticals, chemicals and plastics, construc-     nearly 500 sq. km. The last such effort was made in the 1970’s, when the cities of Yanbu and
tion materials, metal fabrication and technology parks would also be established in the city.        Jubail were created. The success of these cities also shows the Saudi Arabian execution capa-
                                                                                                     bilities in creating such cities. As per the 8th development plan, real-estate activity is expected
to increase at CAGR 5.8% from 2004-09, which would increase its contribution to real GDP         With Saudi Arabia occupying nearly 87% of the 2475672 sq. km. GCC area and population
from 6.8% in 2004 to 7.2% in 2009.                                                               concentrated in only 3 regions of Riyadh, Makkah and Medina, huge real estate development
                                                                                                 scope is still available in other parts of the country. It is due to this reason that the kingdom
                                                                                                 has decided to launch economic cities, aiming for development in other regions of the country
                                                                                                 as well.


                                                                                                 3.2. Demographics point towards accelerated real estate demand in the next decade
                                                                                                 Saudi Arabia will experience increasing GDP per capita over the next decade. Amongst the
                                                                                                 GCC, Saudi Arabia is estimated to have the second fastest nominal GDP per capita growth of
                                                                                                 CAGR 6.0% over 2008-2013. Also, nearly 40% of the total population is under 14 years of age.
                                                                                                 As these people join the workforce, demand for housing, retail and commercial real estate will
                                                                                                 witness a boost.


Real GDP growth rate itself is expected to increase from 4.8% in 2008 to 5.8% in 2013. Within
the GCC, UAE and Saudi Arabia are expected to experience an accelerating GDP growth over
the next 5 years.
Saudi Arabia has the lowest person per sq. km. ratio of 13.1, in comparison with GCC coun-
tries. However, population distribution is concentrated only in a few regions, with nearly 65%
of the total population inhabiting Riyadh, Makkah and Eastern Region.




                                                                                                 The country’s young population is likely to contribute more value to the economy, as the number
                                                                                                 of people gaining higher education increases. This will result in higher per capita income for
                                                                                                 the economy.
                                                                                                        3.5. Favorable real estate law
3.3. Fast growing population – Means huge real estate potential                                         Mortgage financing is in its nascent stages in Saudi Arabia. The “New Mortgage Financing
The Saudi population is expected to grow at CAGR 2.3% from 2004-2015, higher than CAGR                  Law” passed by the Shoura council (the legislative assembly in Saudi Arabia) in July 2008, will
2.0% growth of Arab countries, creating a need for a large number of housing units. In 2004,            allow more Saudi’s to own real estate owing to affordable mortgage financing. Currently, only
there was a shortage of nearly 270,000 housing units. The shortage is likely to remain in future        1 in 5 Saudi’s own a home. The draft law has to be passed by the council of ministers to come
as well, with an additional demand for 0.7 million housing units arising by 2009.                       into effect. Once enacted, the law will favor real estate sector growth through the following:
                                                                                                        • It will increase the tenure and debt limit of an individual wanting personal finance, which is
3.4. Declining interest rate – A catalyst for real estate demand                                        currently restricted by SAMA (Saudi Arabian Monetary Authority).
Two trends favoring real estate growth seem to be emerging. Firstly, credit off take for real           • Banks will have greater ability to recover their loans in case of default.
estate witnessed positive growth in 2007 after decelerating in 2005 & 2006. Secondly, since             • Securitization would also become a possibility, allowing banks to generate more funds for
October 2007 reverse repo rate decrease from 5.00% to 2.00% in May 2008, providing banks
with more liquidity, part of which would get directed to real estate sector. Also, interest rate eas-   increased mortgage financing.
ing across the globe may attract more foreign investments in this sector.                               The real estate laws in Saudi Arabia allow non-residents to own private property for business
                                                                                                        and for residing their employees. Property investors have also been allowed to rent their prop-
                                                                                                        erties. While this may increase foreign direct investment, the prices of real estate may rise
                                                                                                        due to speculative activity. As a precaution the government requires these investors to retain
                                                                                                        ownership for a minimum of five years before re-sale.
3.6. Equity markets – Funding the real estate boom                                                  4. Valuation and Performance of GCC Realty
The top 3 real estate companies by market capitalization in the Saudi stock exchange got            GCC real estate stocks had a market capitalization of nearly US$99.49 billion on 22nd July
recently listed in 2006-2007. And many more are lined up for raising funds from the equity          2008. UAE, naturally(Dubai and Abu Dhabi), forms nearly 40% of the total GCC real estate
markets in 2008. The large size and strong oversubscriptions of these issues is indicative of       sector market capitalization, The industry average P/E for the GCC region stands at 20.1x
the growing appetite and interest in the real estate sector by the investor community. The real     trailing twelve months. Saudi Arabia is trading at a premium against its peers, indicative of the
estate supply development will most likely be funded through equity markets, attributable to        investors’ growth expectation from the Saudi real estate.
their scale e.g Emaar The economic city.




3.7. Government focus towards providing affordable residential housing
The real estate supply is concentrated towards the high income residential segment, whereas         Real estate development activity still largely remains concentrated in the UAE, having 50% of
the middle and low income population remains underserved. As a result, the government is            the top 10 companies by market capitalization in GCC. Moreover, UAE is second only to Bah-
ensuring an increase in soft loans for housing through higher fund allocation to the Real Estate    rain in Return on Assets. The largest Saudi Arabian company by market capitalization is less
Development Fund in its 2008 budget. To meet the housing demand, the eighth development             than half the largest UAE company, Emaar Properties. Moreover, the 3 Saudi Arabian com-
plan is targeting construction of nearly 1 million housing units by 2009, including 875,000 units   panies amongst the top 10 have listed on the Saudi stock exchange in the last 2 years. The
which would be constructed by the private sector. Funds worth SR25 billion are being allocated      need to raise such large capital indicates the scale of real estate projects that Saudi Arabia is
over next 5 years for real estate loans.                                                            finally beginning to develop. The number of real estate companies raising equity from investors
                                                                                                    seems to be balanced in case of Saudi Arabia and UAE at 8 each.
                                                                                                      5. Key Investment Risks
                                                                                                      Real estate sector growth would be driven due to a large unmet demand for housing and com-
                                                                                                      mercial spaces in the country. Demand side factors are unlikely to act as a key risk to real es-
                                                                                                      tate growth, unless serious economic downturn occurs. The factors that may hinder the pace of
                                                                                                      development would most likely be supply side related. Rising construction costs, skilled labor
                                                                                                      shortages, project delays and excessive speculation resulting in demand destruction may re-
                                                                                                      sult in revaluating the positive outlook on this sector.
                                                                                                      Skilled labor shortage poses a major challenge for GCC’s economic growth. Saudi Arabia
                                                                                                      remains at disadvantage, owing to skilled labor preference for shifting to UAE. The level of
                                                                                                      education for the Saudi population remains low. As a result, dependency on foreign nationals
                                                                                                      increases. The net dependency rate (no. of Saudi population/ no. of Saudi employed) was 4.67
                                                                                                      in 2004, implying one Saudi was employed out of every 4.67 Saudi’s.




                                                                                                      The simultaneous economic boom in MENA and BRIC region has created high demand for
The real estate index of Saudi Arabian stock exchange has declined 21.94% YTD, owing                  inputs such as steel, cement etc. With supply unable to match demand, input costs will most
primarily to global risk aversion to equity by the investors and had little to do with the perform-   likely rise in the medium term, reducing profitability, which might delay development of more
ance of the company’s. A stellar performance was given by Taiba Holding Company, reporting            projects. SABIC, the gulf’s largest steel maker raised steel prices in April 2008. According to
189.8% revenue growth and 270.4% net profit growth in 2007.                                           local newspapers, steel prices rose 29.6%, with prices ranging from SR3850 and SR4255 per
                                                                                                      tonne for different types. Cement prices have nearly doubled in the last four years.
                                                                                                      Execution risk is another concern with the Middle East real estate sector. Projects tend to get
                                                                                                      delayed too often owing shortage of skilled workers, lack of on time regulatory clearances, and
                                                                                                      underestimating project costs etc. Hence, it is reasonable to estimate that most projects too be
                                                                                                      announced will be completed with a lag time effect.
                                                                                                      Disclosures

				
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