Saudi Arabia: Where was the Ministry of Planning?

Saudi Arabia’s population has quadrupled over the past 40 years.  The majority of Saudi nationals are under 25 years of age.  Looking at the simple fact that Saudi Arabia has faced an ever-increasing population of its own nationals plus a continued influx of expatriates into the Kingdom, how come the Ministry of Planning did not…er plan…rather than have the housing shortages of today?

I will concede that there has been excruciating slowness on available opportunities for Saudi nationals to obtain mortgages in order to purchase homes.  But has that been the key reason of why there is also the shortage of available (and affordable) homes?  In order to keep up or should it be get caught up with the increasing population, an estimated 2 million homes must be built by 2014.

King Abdullah announced that US$15 billion has been pledged towards construction of new homes and interest free loans but could this perhaps be too much too late?


22 Responses

  1. An interest free loan definitely sounds good to me!!! I wish we could have that back home (not just for home loans but also for school and cars:-).

  2. While the loans will state interest free in compliance of Islamic banking there are generally some service charges or fees which seem to replace interest…maybe someone can explain better the concept of an interest free loan yet the charges that must be paid in order to acquire the loan?

  3. The basic “planning” problem here is obviously not building houses or morgages, it’s bringing some education to people in order to stop them from reproducing like rabbits, its a basic problem in most 3rd world coutries and it’s just unsustainable, not only for them but also for the planet…

  4. They actively encouraged people to reproduce. It didn’t just happened. It was packaged as a religiously great thing to have as many children as possible and they were told no planning necessary because Allah would provide. And of course now, someone must be doing them wrong and interfering in the bounty promised their children.

    I hope someday the masses turn on their brains- and stop listening to these people.

    Of course, ironically the country CAN afford it’s population- but it made no plan.

  5. There would be good topic ‘Islamic Banking’ vs. ah, well, ‘Western banking’.
    Not to sund rude, but a lot of governemnt projects in certain regions, ‘build’ then ‘plan’ as opposed to ‘paln and build’. I know, I am in at the moment. Pretyy much seeing a lot of loopholes.
    As a details person that I am, I think Ministry of Planning should come up with realistic goals. In general, there are great ideas, but also, not attainable. In general, small leaps done successfully rather than huge picture that hits too many barriers.

  6. They should start building more high story apartment buildings instead of what they’re doing now, just expanding fancy villas into the desert and ruining some really beautiful nature!

    But there’s still space In the Empty Quarter, no worries 😀

  7. Do individuals own land? Is there no such thing as Developers or Contractors who can build houses or is the government the only ones who can build?

  8. @Lynn,
    People own land. And they build. I don’t think the gov’t is actually going to get into the home-building business. They have increased the money available for loans, so that people can build/buy their own. Yes there are plenty of developers/contractors.

  9. Land here is very expensive!

  10. Thanks Sandy, the whole Ministry of Planning being blamed for not enough homes and that part that said ‘King Abdullah announced that US$15 billion has been pledged towards construction of new homes’ threw me off. Is the govt. the only one that can provide loans? Aren’t there plenty of wealthy people that could get in the building and lending business?

  11. @Lynn

    It could be that the gov’t is going to be building. I don’t know. Land is so expensive that people simply can’t afford to buy. Wealthy people build and rent- but no one else can afford land. Also, with the population explosion there aren’t enough ready-built used houses for people to buy.

    Part of why land is so expensive is that people sit on it. People own land and can’t afford/or choose not to develop it as an investment. Because collecting interest is not Islamically acceptable this is a way to invest in an Islamically allowed way that also has a big payoff. Vast tracts of lands in the cities were purchased a generation ago. Those owners often use a portion for their children. But populations have grown as people relocate from more rural areas to the urban areas. Of course these people with many children did not have the opportunity to buy vast tracts of land a generation ago. So they are having a hard time finding/affording a reasonable place.

    I believe the government ALSO snapped up vast tracts of land long ago. So perhaps part of this package is releasing some of that land for affordable housing. That would be a good move.

  12. @Re: Islamic Interest Free Loans

    From what I have read and heard, so-called islamic banking and related Interest-free loans are a sham,
    myth, and financial smoke and mirrors. Like most things in islam and in moslem countries, it is mostly appearance over the “real thing”!

    Islamic economic institutions claim to operate on the basis of “zero interest.” However, the fundamental practice of charging interest (e.g., charging a premium on the principal amount of the loan, for the time value of the loaned money) is not truly eliminated in Islamic banking, but is merely relabeled and disguised using various legal tricks.

    According to a book I read a few months ago …. Islamic Banking: $300 billion Deception …. by a former adviser to Islamic banks, Mohammad Salim, referred to these practices as “financial smoke and mirrors.” He likens them to “contractum trinius,” a method devised by European bankers in the Middle Ages to circumvent the church laws against charging interest on borrowed money.

    Citing a Kuwaiti banker named Ahmad Al-Sarraf from the Kuwaiti daily Al-Qabas, titled “The Non-Usury Deception,” he maintains that dealing with conventional banks is less costly than dealing with the Islamic banks. Founded on principles and practices developed over centuries, the conventional banks know their way around, while the Islamic banks have yet to find their bearings, in the absence of traditions to guide their activity.

    Citing fundamentalist cleric Professor Hamid Al-‘Ali, who teaches Islamic culture in a college in Kuwait, Al-Sarraf explains that the Islamic banks disguise usury by inventing documents that appear on the surface as sales documents, but that are actually interest-bearing loans. Therefore, anyone who distinguishes between traditional and Islamic banks is ignorant, he says.

    To add injury to the insult, Al-Sarraf adds that most of the Islamic banks are guided by well-paid clerics who are employed by the bank, and issue rulings according to the bank’s needs. The entire corpus of paperwork created by these Islamic banks, Al-Sarraf concludes, is in violation of the rules of the shari’a and is inherently deceptive.

    Truth is indeed stranger than fiction in Islam!!!

  13. Of course islamic banking is a sham. It’s a total rip off and they get their interest (and a lot more) in ”costs”. It’s pure hypocrisy.
    Same is sitting on your land to sell it later at a higher price, it is exactly they same as cashing in interest.

  14. Maybe the govt will provide truly ineterest free loans. – islamic style.
    If so then it’s good use of that money as well as a benefit to the people and maybe will help less wealthy people purchase property…

    As for islamic banking especially interest free loans – big bunch of bull, They just buy and see it back to you at a higher rate so they make their ineterest , just not call it interest, it’s all in the paperwork. and beleive me the markup is as high as any ineterst rate could be 🙂 we disposed off property in saudi and it was a PAIN!!!!

  15. In 1975 Hisham Nazer was appointed Minister of Planning by King Faisal.. The same ambassador that walked out on Saudi citizens in distress in Egypt and sacked by the king two months ago.

  16. Interesting post,

    First I would like to refer to a book about Islamic finance for those who ask about it
    the book called ” Gulf capital & Islamic finance: the rise of new global players ” by Aamir A. Rehman an American born and raised , Harvard graduate who used to be one of the top managers at HSBC Amanah ( the Islamic branch of HSBC) , Islamic finance is an industry of 600 billion in the GCC countries and Egypt, let alone Malaysia, Singapore, Morocco, the U.K and Pakistan. Islamic Finance is thought at London School of economics and other respected Business school in the U.K .

    Back to the post topic,

    The government loan for housing in Saudi and other GCC countries are interest-Free , literally you pay back what you have received. Anyway, owing a house , not an apartment, in the GCC is different in many ways, due to the weather and the merial used to buld the house and how the house is built, it is full concrete and it is expensive. Lands in main cities and in middle to upper-middle class is not cheap. One Saudi economist suggested that the government housing be in cities’s suburbs which I only hope it doesn’t turn into ” ghetto” project housing such the ones in Paris. Other thing that many Saudi family after they grew – in age – won’t like to live in apartment thats why some businessmen think the high-rise apartments won’t attract the vast majority of locals , just like Qatar where locals look houses not apartments.

    After the new king’s orders,The increased amount of loans will help Saudis to have more options.

    And this is what we in Saudi should look more economic reforms and develop the business culture and help rural areas grow ergonomically and encourage business in small cities. We need more support for local Saudi investors and small business to help the whole economy.
    And continue in supporting education and develop universities and project like the Technology Village in Dhahran so we can diversify our economy and become more independent.

    I had the chance to have really valuable insights in one Canadian province’s affordable housing projects but I wouldn’t share info while I work with them lol Although I don’t think it is very effective in the province or it will work in Saudi but the mechanism is interesting.

  17. @Aafke,
    I have to disagree. Sitting on land to earn profit is not the same as earning interest. They are both ways of growing wealth- but interest is interest. However, some of what passes for Islamic banking is certainly a lot of smoke and mirrors. But that doesn’t mean it doesn’t exist.

    One of my concerns is I have already heard talk of people just jacking up rentals and sale prices on the assumption that everyone just got a 2 month bonus, and everyone can get a bigger loan- so no reason not to raise rent and property prices. I don’t know what the solution is. But the land shortage drives the prices up when the people have more money. I do hope the government will supply low-cost housing. And I hope they get competent people building the homes.

  18. @ Sandy

    I think rentals follow agreements but maybe new rentals will increase, You can’t prevent them from doing do. I know in university based cities in Canada, you can notice a HUGE difference in price between September and May! The end and the beginning of school year. Anyhow, for the land shortage, I don’t know about Riyadh but in Dammam and Khobar people tend to look for lands to build houses in popular areas , middle and upper-middle class neighborhood and Aramco style neighborhood which drived prices of lands up high, and people who own lands over there benefited form this. People have other options but maybe class differences and being a little far ( 20 to 20 minutes form downtown and many facilities ). So I think the idea the affordable housing in Suburbs could work although it could create more social classes problem. Saudi and GCC economists input in this subject is very valuable

  19. Saud is correct in the fact that the Saudi government does not charge interest at all, not even in the Islamic banking sense. Think of it as a government subsidy.

    I also agree with Radha, Islamic loans are nothing but a usury disguised under creative paper work with the buyer usually paying more than conventional loans. Somehow an all knowing deity would not see through that.

    Regarding the issue of land prices. Discounting the differences between cosmopolitan areas and average suburbs, which is a phenomenon you can find anywhere, Saudi still has high land prices for average locations. There are many reasons:

    – Population growth and population moves to the big cities is too fast
    – Land is really not expensive in Saudi. If there is anything Saudi has plenty of (other than oil), it is land mass. What gets expensive is land with services (roads, electricity, etc.)
    – Planning for services is not keeping pace with demand
    – Corruption: Average people do not have information about which lands will receive services in the future. Well connected people get access to that information and if they are connected enough they even impact policies that drives plans to provide services to their lands. If they are super connected they can even get government grants for large pieces of lands (we are measuring in Kilometers here). A couple of years later those areas start getting services and they can make a killing in selling to average people to build homes.

    Like many of the issues of Saudi, you will find corrupt practices driving decisions, with the average person not gaining much from the subsidies. Yes you may get an interest free loan, but you may pay for it double in artificially inflated land prices to benefit the few.

  20. Saud, concrete is one of the cheapest materials.
    Unless somebody has a monopoly of course and is corrupt and rips everybody off.

  21. I worked in Nass Construction in Bahrain for over a year….cement is a lot like gas prices…anything and everything causes the prices to go up. There can be shortages which also affect price…and hoarders…which affect price. Or, as happened one time, all the cement was stuck on the Saudi side of the causeway and nothing was getting done construction wise in Bahrain…cost millions/billions of dinars…just cause of cement.

  22. Strawbale houses would be great here. I’d love to build one for my own home. I wonder if the Saudi gov would agree?

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