When you think about it, two of the world’s most popular board games, Monopoly and Risk, are essentially the same game. Sure, the terminology and gameplay may be different, but both games take a painful amount of time to complete (and are typically abandoned within the first four hours of gameplay). More importantly, they’re based on the same objective: controlling everything on the board.
Granted, Monopoly is about dominating Atlantic City’s real estate, while Risk is about dominating the world. Either way, the board goes to the player with the most sophisticated, forward-thinking strategy. Or at least a lot of luck.
Sort of like real estate.
Moving away from the board game analogy, let’s look at the real-world connection between government control and economic/real estate activity. Saudi Arabia is a perfect example.
As you may recall (since it’s still happening), the so-called Arab Spring has drastically changed much of the Middle East. Millions of citizens–citing economic disparity, political oppression, etc.–have risen up against their governments and in several cases succeeded in removing regimes from power.
In the past year or two, our TV screens have been flooded with images of what happens when a government opposes such a popular movement. Libya, Egypt, and especially Syria provide frightening examples of governments’ resistance to change.
Of course, the rest of the Arab world has been watching this revolution very closely, and nations like Saudi Arabia have opted to change ahead of any civil unrest. This is wise; a happy populace will not revolt.
As CNBC explains, King Abdullah and the oil-rich Saudi Arabia have taken steps to strengthen the nation’s middle class and grow its housing market through billions and billions of dollars in social spending. Part of this stimulus includes $67 billion for the construction of half a million new homes.
And those half-million new residential properties are far less than Saudi Arabia will need in coming years:
A September review of the housing market by National Commercial Bank (NCB) Capital estimated that close to $346 billion in investments would be needed to construct 2.4 million housing units between 2011 and 2020, predicated on the fact that the [pending] mortgage law would also help feed an active secondary market and boost effective capital utilization by lenders. This in turn would mean more opportunities for commercial banks and real estate developers... [emphasis added]
Attempting to boost supply and ease housing prices, Saudi Arabia is setting the stage for a huge amount of private sector involvement and growth in the mortgage banking industry. International banks and brokerages, such as Credit Suisse (NYSE: CS) and Jones Lang LaSalle (NYSE: JLL) are watching this legislation carefully. Updating the country’s real estate financing policies will likely benefit retail real estate investors, too, analysts predict.
Another country, one with an equally tenuous relationship with the U.S., is also struggling with this housing problem: China. But while Saudi Arabia seems willing to offer latitude to private sector lending and development, China’s reaction has been to increase its control of the housing market.
No one can expect a government with a long tradition of heavy regulation to immediately adapt to Western-style capitalism. But as foreign investors look at real estate opportunities in either country, the government’s relationship to the private sector will be one of the most crucial concerns.
This isn’t to say Saudi Arabia’s real estate offers more potential than China’s. But as we’ve learned from the Arab Spring, sometimes governments with a gentle hand last longer than their iron-fisted counterparts.
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