RIYADH (Reuters) - Saudi Arabia is close to striking deals with South Korean and Chinese firms under a $100 billion project to build 1 million low-cost homes over the next five years, its housing minister said on Wednesday.
The government, which last year signed memorandums of understanding with those countries to develop some 200,000 properties on state land, expects to receive final proposals from the companies by mid-May, Majed al-Hogail said in an interview.
As the country works to resolve a shortage of affordable housing, Hogail is also seeking partnerships with American builders and met with U.S. Housing Secretary Ben Carson this week.
“We are already talking to some developers. We think very soon there will be some agreements signed,” he said.
Like many Saudi economic policies, the program relies heavily on private sector participation because the government, its budget strained by low oil prices, can no longer afford to stump up much money.
State funds will provide seed capital but Riyadh hopes private firms and banks will provide much of the investment and bear some of the risk.
“We are now developing the PPP (public/private) programs with local and international developers. We hope by having both of them and by adopting new building technologies, we can respond to the demand within five years,” he told Reuters.
“At least if we respond (with) 1 million units, that would be a good success.”
Some 1.6 million Saudis are currently on waiting lists for government housing programs.
Over the last year, the government has tweaked financing rules to encourage mortgage lending and introduced a “white land” tax to push more undeveloped urban land into the market. Hogail estimated the tax would bring in 1 to 2 billion riyals ($267 million to $533 million) annually.
He is also opening up new routes to finance construction in a country where fewer than 2 percent of some 6.4 million existing homes were built with the help of banks. Current access to housing finance satisfies only 3 percent of demand, he said.
The Saudi Refinancing Co, a 5 billion riyal mortgage firm owned by the kingdom’s Public Investment Fund, is expected to start operations within the next month.
The company plans to buy real estate portfolios from banks and mortgage finance companies, refinancing some 50 billion riyals of mortgages over the next five years. Hogail said the Ministry of Finance would begin guaranteeing securitization of the portfolios by the end of the year.
The new company, along with the expansion of programs at the government’s existing Real Estate Development Fund (REDF), is projected to boost bank finance for home ownership to 550 billion riyals by 2021 from 280 billion riyals at present.
“With the change of REDF from direct lender to market maker, we think we will have more of a secondary liquidity market for the mortgage industry,” said Hogail.
Editing by Andrew Torchia and John Stonestreet