Report from The Middle East
- Apr 06, 2009
By Bob Koch, Fugleberg Koch ArchitectsThe world economy is challenged by a global crisis that has starved the industry of credit and liquidity. But, not all liquidity is frozen or lost to declining market values. In parts of the Middle East, where Islam and its financial laws are observed, cash is king. In Saudi Arabia, it is estimated that over $600 billion is stashed away waiting for the signs of promise to again invite investment there and abroad.While parts of the Middle East like Dubai witnessed rapid growth fueled in part by real estate speculation, other parts such as the Kingdom of Saudi Arabia (KSA) were confined by Central Bank controls and the conservative and religious conviction that borrowing is not acceptable when investing or purchasing. While other parts of the Gulf region were making and building anew with massively sized ventures and focus on world participation within their borders, Saudi Arabia moved slowly and with more strict limitations on foreign investment and business within their realm.As a result, the domestic economy, while injured by foreign investment, is still active and vital and the need for product to meet the internal demand in many sectors remains active while guided by more caution than before. With oil wealth as their primary source of national income, they are faced with capital in excess of the internal investment opportunities. While many sophisticated investors and investment banks enjoy comfort with financial products for their capital, the main middle class, whose tax-free income and wealth, find greater comfort with hard assets. Real estate traditionally has been considered a very secure investment, particularly when considered in an un-leveraged acquisition. Internal to the country, there remains a large demand for housing focused on the mid markets and below. High land costs with very affordable construction (via low labor costs) combine to limit availability to many. Expats, not allowed to own real property personally, are forced to become tenants in this location, while other Middle Eastern countries have opened up property ownership to foreigners, helping to fuel their boom.Finding solutions to their supply shortage is a national priority and to that end, major “new cities” for corporate and housing growth are planned to expand to meet the need. A pending mortgage law that could slowly advance mortgage products to citizens could see some relief to those without the family liquidity to buy their homes in cash as is often the case. Over time this is expected to help to fuel a housing boom for the nation of KSA. Major regional development interests from the Emirates have begun to shift their focus to this region as the once booming locations are recoiling from the speculative frenzy that proceeded the last quarters of 2008.Design is encouraged and exterior architecture on major commercial and corporate facilities is elaborate and aggressive. The western style finds acceptance at all levels. Housing still remains simple and reflective of design traditions in plan, unique to this part of the world. While the rest of the world filters through its economic woes, KSA and other locations in the Middle East move forward fueled by conservative financial values, a strong national economy, and an appetite for “new” as embodied in western style and approaches.