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Saudi Real Estate Rises on Labor Requirement Bets: Riyadh Mover

Saudi Real Estate Co. (SRECO) rose to the highest level in eight months on speculation construction companies may be exempt from penalties on businesses where the majority of workers are non-Saudis.

The shares advanced 2.8 percent to 29 riyals, the highest since April 7, at the close in the Riyadh, bringing a surge in the past six trading days to 22 percent. About 1.2 million shares were traded, compared with a 12-month daily average of about half a million. The stock fell 1.8 percent last month. The benchmark Tadawul All Share Index (SASEIDX) slipped 0.2 percent today after rallying 4.2 percent the previous four trading days.

The Labor Ministry said last month it will impose a monthly fee of 200 riyals ($53) for every foreign worker if the employer’s workforce comprised less nationals than foreigners. The kingdom, the largest Arab economy, is pushing ahead with the decision, Arab News reported Nov. 25, citing Labor Ministry spokesman Hattab Al-Anazi. Two calls made to the Labor Ministry’s office in Riyadh weren’t answered.

“There is speculation that construction companies may be excluded” from the decision, is pushing real estate shares up, said Asim Bukhtiar, head of research at Riyad Capital. “There has been quite a bit of discussion and debate and the lobbying is ongoing at the labor ministry; otherwise construction costs are expected to skyrocket,” he said.

The Tadawul All Share Building & Construction Index, comprised of 15 construction companies, rose 0.2 percent today, bringing a rally the past five days to 4.1 percent. The Tadawul All Share Real Estate Development Industries Index increased 0.4 percent, bringing a gain the past five days to 4.7 percent.

The percentage of Saudi workers in non-government companies is between 2 percent and 10 percent, Arab News reported last week, citing Labor Minister Adel Fakeih. There are about 8.4 million foreign workers in the kingdom, including 6.9 million employed by non-government companies, he said.

The planned fee is a “small amount to pay for the benefit of their country,” Prince Alwaleed Bin Talal, chairman of Kingdom Holding Co. (KINGDOM), said in a statement yesterday. The Labor Ministry wants to encourage companies to stop the “culture of importing cheap labor,” the Saudi Press Agency cited Deputy Minister of Labor Moufarrej al-Haqbani as saying on Nov. 13.

The decision comes as Saudi Arabia plans to build 500,000 homes as part of infrastructure investments exceeding $500 billion, spurring the fastest pace of construction industry lending in at least four years.

Third-quarter profit at Saudi Real Estate rose 40 percent to 47.2 million riyals ($12.6 million). The stock has a 12-month dividend yield of 3.5 percent, compared with a dividend yield of 3.7 percent for the benchmark Tadawul.

Six analysts recommend investors buy the shares of Saudi Real Estate while three have a hold rating on the stock, according to data compiled by Bloomberg.

To contact the reporters on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net; Zainab Fattah in Dubai at zfattah@bloomberg.net

To contact the editor responsible for this story: Alaa Shahine at asalha@bloomberg.net

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