From the shores of the Red Sea in Jeddah, Saudi Arabia, Mowaffaq Al Hashimi sits down to discuss the growth of his career in real estate, including the reasons for founding Saqifat Al Safa in 1996 and focusing on certain business disciplines. Gaining exposure to both the US and Saudi markets throughout his academic and professional lives, he maintains a deep knowledge of international real estate investment, finance, and development, as well as how to properly assess the risk vs. return of a given opportunity. Saqifat Al Safa provides comprehensive real estate services in Saudi Arabia, the Gulf, and Levant ranging from development to marketing & sales and property management. It is an active participant in existing and development projects across residential, commercial, hospitality, industrial, and mixed-use product types. Most recently, Mowaffaq and his company have become involved with a program launched by Saudi Arabia’s Ministry of Housing to provide affordable housing on a large scale.
Dealmaker Highlights
(0:00:42) Episode intro – Kyle highlights key information about Saudi Arabia, Mowaffaq Al Hashimi, and Saqifat Al Safa.
(0:03:50) Career Foundation: The Ascent of a Dealmaker
(0:04:10) After completing his undergraduate studies in the US, Mowaffaq embarked upon a number of development, asset management, property management, contracting, and fund investment/marketing roles based out of Jeddah. Some of his most memorable projects include a hotel, 300-unit residential compound, and a large shopping mall.
(0:10:56) Started in 1996 as a real estate service provider to small offices and companies, Saqifat Al Safa originally offered six separate business lines. As the company evolved into a more institutional concern, the areas of focus became development, marketing, and property management.
(0:15:31) Making the Market: A Research Perspective
(0:15:45) Prior to COVID-19, Saudi Arabia’s Ministry of Housing launched a program for developers to create hundreds of thousands of residential units. Other product types, mainly retail and office, largely faced a slowdown because of e-commerce and international trade concerns.
(0:17:10) Most residential units were targeted toward middle and lower income individuals at price points between $US 80,000-200,000. Not only has the Ministry-sponsored program helped improve Saudi citizens’ chances of home ownership, but an expedited loan process has also been very attractive to home buyers.
(0:19:25) Locating buyers is not always easy, as they need to first negotiate financing with a Saudi bank and have an approved application from the Ministry of Housing. Only a very small level of demand in the Saudi housing market comes from foreigners or ex-pats.
(0:22:24) In response to COVID-19, the public awareness of Saudi citizens was very high. As a result, the government had more success in containing the spread of the virus than other G-20 members. On the economic side, the government implemented a program to pay Saudi citizens a portion of salaries while remaining at home, which helped to reduce anxiety and minimize layoffs. Mowaffaq feels the government did an excellent job of balancing the fight against the disease with the preservation of Saudis’ livelihoods.
(0:32:00) While indoor dining is currently allowed, restaurants have implemented a myriad of measures (4-person max. table sizes, mask wearing, hand sanitizer, contamination rooms, temperature checks, etc.) to reduce the likelihood of virus spread and keep clients safe.
(0:33:48) Once the country emerged from lockdown, the volume of transactions nearly reached the same level as last year. However, an increase in the VAT from 5% to 15% was approved on July 1st, which will affect the volume of exchanged property for a few months. Expectation is that the market will normalize with prices down 10-12%.
(0:38:42) Government negotiated a deal with banks to grant forbearance for homeowner loan payments. On the retail side, many landlords agreed to rent relief requests outside of any government program. Mowaffaq estimates that most retailers are doing 45-50% of pre-pandemic sales volumes, with businesses such as supermarkets and pharmacies performing exceptionally well. COVID-19 has accelerated the e-commerce trend within Saudi Arabia, as more individuals are now comfortable ordering clothes and other items online. With this said, he has not observed more than ~10-20% of retail businesses that have been severely affected.
(0:46:14) There is very little foreign ownership of housing in Jeddah. On the commercial side, private equity firms and hedge funds from other GCC countries may occasionally invest in the Saudi real estate market, but not a common theme.
(0:49:24) Politicians and Attorneys: Red Tape and Bureaucracy
(0:49:40) The development timeline is relatively predictable if a project conforms to existing zoning laws, land use, and building restrictions. If a developer wants to modify the zoning (especially in a central location), it is usually a cumbersome, lengthy undertaking that Saqifat Al Safa has not historically pursued.
(0:54:15) A tax break exists for investing in existing assets as opposed to development projects. As the mortgaging of property is tightly controlled in Saudi Arabia, title insurance is not a commonly used instrument.
(0:55:15) Vacant land tax is assessed at 2.5% on the value of raw land. Once horizontal development is complete, projects are no longer subject to the tax, incentivizing investors to create a usable piece of land with the needed infrastructure.
(0:58:09) With regard to the permitting and entitlement process, it does not take long to obtain the required permissions as long as existing zoning is not violated. If a project is located in an outlying area of the city, however, a land rezoning process is significantly easier.
(1:00:33) Finance and Formulas: The Economics Behind the Deal
(1:01:07) Saqifat Al Safa recently worked on a centrally-located, entitled land site awarded by the Ministry of Housing. During the pursuit of a bid to develop residential units on this site, the lockdown occurred and created challenges that resulted in Mowaffaq losing the deal.
(1:02:30) Saqifat Al Safa’s involvement with the site occurred after the horizontal development had been completed (sidewalk completed, utilities connected, etc.)
(1:03:55) Jeddah’s housing market features attached, detached, and multi-story housing. This particular deal was envisioned to be an 8-story, mid-rise building.
(1:04:32) The development timeline for housing projects is set at 18 months by the Ministry of Housing. Once the final development contract is finalized, developers shoulder the responsibility to complete the project within this time frame. The bank that a home buyer uses for a loan will also provide financing to a developer for the relevant project.
(1:06:12) Most developers’ objective is to make a 10-15% profit from home sales on the total cost of the project.
(1:07:55) Investment Committee Q&A: Sharia-compliant finance
(1:08:15) Borrowers in Saudi Arabia have the choice of conventional or sharia-compliant financing. Certain banks are more geared to one versus the other.
(1:10:50) If Saudi investors are acquiring or financing a project in a non-Muslim country with a prohibited use, there are possible workarounds that exist. The main determinant is the extent to which the income from the prohibited use is a major contributor to the overall income.
(1:13:21) The sukuk (Arabic for “deeds”) concept was developed before the REIT market in Saudi Arabia blossomed. As a result, it now has a relatively minor presence in the country.
(1:16:14) Tourist in Your Own Town: How to Spend Three Perfect Days
(1:16:33) Mowaffaq makes recommendations for comfortable lodging, appealing cultural sites, entertaining recreation centers, and restaurants across the gastronomic spectrum.
(1:22:13) The city is not a difficult one to navigate, especially as the main streets go from north to south and Google maps is a useful resource.
Additional Links:
Hotels
Sheraton – https://www.marriott.com/hotels/travel/jedsi-sheraton-jeddah-hotel
Hilton – https://www3.hilton.com/en/hotels/saudi-arabia/jeddah-hilton-hotel-JEDHIHI/index.html
Rosewood – https://www.rosewoodhotels.com/en/jeddah
Intercontinental – https://www.ihg.com/intercontinental/hotels/us/en/jeddah/jedha/hoteldetail
Attractions
Jeddah Old City – https://whc.unesco.org/en/list/1361/
Durrat Al-Arus – https://goo.gl/maps/MAXKhLd1NbyHBqXW6
Obhur Bay – https://goo.gl/maps/ygYXTR3g6sMDhf7j7
Desert camping – https://www.visitsaudi.com/en/packages/intercontinental-travel-company/desert-camping-in-jeddah
Restaurants
Albaik – http://www.albaik.com/en
Contact Information
Email: mah@saqifatalsafa.com
LinkedIn: https://www.linkedin.com/in/mowaffaq-al-hashimi-aa343533/
Website: https://www.saqifatalsafa.com/en/
