Saudi Real Estate Co. may sell Islamic bonds or take out bank loans this year to finance a 5 billion-riyal ($1.3 billion) housing development north of Riyadh, its chief executive officer said.
“We are trying to ensure we can sell Islamic bonds, borrow from banks or get financing from real estate funds if we have to,” Fahad Al Said said in a March 10 telephone interview. “Off-plan sales make a lot of sense for residential development at the moment.”
Saudi officials have recently allowed advance sales of unbuilt properties, known as off-plan, to encourage home construction. Saudi Real Estate will focus on middle-income buyers to take advantage of a shortage of housing in that part of the market, the CEO said, declining to provide a price range for the homes.
Saudi Real Estate is securing final government approval to build 7,000 homes as well as offices, hotels and shops on 2.5 million square meters (27 million square feet) of land, the CEO said. The project, to be built in phases, includes roads, water and electricity supply. The company will probably seek the funding in mid-2013, he said.
“We’re seeing a lot of interest from other developers that would like to buy land from us and develop it themselves,” the CEO said. Saudi Real Estate, which generates around 70 percent of its income from renting properties, will pay for some of the development with its own capital, he said.
Saudi Arabia, the world’s largest oil exporter, needs 2 million new homes by 2014 to keep up with a population that’s quadrupled over 40 years. In March 2011, King Abdullah pledged to spend 250 billion riyals ($66.7 billion) on new homes as a wave of revolutions toppled leaders from Morocco to Yemen.
“We have the ability to complete the north Riyadh project within two years, but we will build in line with the demand we see after the first phase,” he said.
The developer is delaying several commercial projects in Riyadh and Jeddah because new office space coming onto the market in both cities is outstripping demand.
“It doesn’t make sense for me to build offices while there is a big need for homes, hotels and entertainment facilities,” the CEO said.
The company is developing a 500 square-meter project east of the capital and building a tower in the port city of Jeddah. It’s also working on an industrial city in the eastern city of Al Dammam, the CEO said.
Saudi Real Estate’s 2013 profit will probably be little changed from the year earlier. Last year, the company’s profit increased 20 percent to 180 million riyals, according to data compiled by Bloomberg.
Saudi Real Estate rose 0.3 percent to 32 riyals at 11:37 a.m. in Riyadh trading today. The shares gained 8.4 percent in the last 12 months, giving the company a market value of 3.87 billion riyals. That compares with a 0.5 percent increase for the Tadawul All Share Real Estate Development Industries Index, which includes seven other developers.
Four analysts recommend investors buy the company’s shares, while a similar number has a hold rating on the stock. One analyst has a reduce rating, according to data compiled by Bloomberg.