The Saudi Arabia Boom and This Time It’s Not Just About Oil

The Saudi Arabia Boom and This Time It’s Not Just About Oil

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The more than 300 apartments in the new Almajdiah Residence complex in Riyadh were sold in just one month for cash, without the company even needing to advertise.

This is Saudi Arabia, the world’s biggest oil exporter, so it’s no surprise that the housing market is booming as the income from a rise in energy prices flows through the economy.

But Almajdiah CEO Abdulsalam Almajed says the dispute over the 1 million riyal ($266,400) houses also reflects something else: the social and economic change that is reshaping the kingdom, accelerated by the crown prince’s reform program.

“There’s a mindset shift,” said Almajed, who leads the family-owned developer, as some Saudis embrace the more open lifestyle his company caters to. “Today there is beautiful creativity in Saudi designs.”

While de facto ruler Mohammed bin Salman has centralized power and heightened political repression since being elevated by his father King Salman in 2015, he has also ended or relaxed restrictions on entertainment and how men and women can mingle, and is trying to contain a dependency on oil.

Ten years ago, many landlords didn’t even rent to women, who needed the approval of a male guardian for many life decisions. Today, women are entering the workforce in greater numbers, and 30% of Almajdiah’s buyers are women, acquiring investment property or home ownership.

They are helping to lift an economy transformed by energy markets. While much of the world is fretting over spiraling inflation fueled by Russia’s war in Ukraine and potential recessions, oil averaging over $100 a barrel this year means Saudi Arabia’s economy is the most grows in the Group of 20.

Gross Domestic Product grew by 11.8% in the second quarter, when the non-oil economy grew by 5.4% and is now higher than at the end of 2019, before the pandemic.

State-owned energy company Saudi Aramco reported the highest adjusted quarterly profit of any listed company globally. Billions of dollars are flowing into Saudi coffers and increasing state investment, heightening sentiment in a private sector reliant on government contracts.

Capital spending rose 64% a year between April and June as the kingdom embarks on a wave of construction, including shopping malls and parks, as well as grandiose plans for a new city built from scratch and a luxury tourist development on the Red Sea. Overall spending was 16% higher, although this year’s initial budget forecasts a decline.

Summers normally send Saudi elites to colder climes in Europe, but Riyadh’s newest high-end restaurants are packed. At Coya, a Latin American chain, the most popular dinners – from 8:30 pm to 9:00 pm – are sold out a month in advance.

Combined cash withdrawals and point-of-sale transactions, an indicator of consumer activity, rebounded, rising 9% a year in June after a record high in March. Inflation last month was 2.7%, about a third of the rate in the US or eurozone.

The Finance Ministry is trying to break the habit of extravagance and oil tracking cuts by flowing stimulus through sovereign wealth funds and into longer-term projects such as electric vehicle manufacturing and tourism.

The economy is expected to grow 7.6% this year, but growth could slow to 2.5% by 2024, according to a Bloomberg survey of economists. Crude oil is now hovering around $90 a barrel as global fears about economic slowdowns and the potential for more supply from Iran if its nuclear deal is resurrected continue to loom over the market.

“If there is another collapse in oil prices, there will again be a slowdown in activity,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “But a number of positive factors are coming together right now.”

Almajdiah caters to affluent professionals who want open-plan homes with abundant natural light. Many Saudis previously preferred homes with high walls and tiny windows to preserve privacy. But social openness, along with smaller families and tighter budgets, is changing that.

The developer’s newest complex is built around shared courtyards and features cafes, gyms and a nursery.

The style echoes the high-end housing in Dubai, the regional hub that Prince Mohammed wants to compete with, heralding plans to double Riyadh’s population and attract millions of expats.

That’s key to Almajed’s optimism, which has helped propel the real estate developer he leads to start planning an IPO. The more people, the more apartments they will need, he said.

(Adds the company’s IPO plan in the last paragraph)

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