Public Private Partnerships (PPPs) are increasingly being used as a platform for attracting more private investment into various sectors of Saudi Arabia’s economy, including real estate, according to a joint report released by JLL and DLA Piper.
The current interest in PPPs in Saudi Arabia has been predominantly driven in the wake of lower oil prices and a dip in government revenue, highlights the report titled ‘Public Private Partnerships: A new approach to Financing Real Estate Development in KSA.’
PPPs are a key component of the Kingdom’s National Transformation Program, which aims to increase the percentage of private sector investment from 40% of GDP in 2016 to 65% by 2030. The partnerships prove to be an instrumental part in the NTP’s plan to increase the contribution of real estate from its current level of 5% of GDP to 10% by 2020.
With less government funding now available, PPPs provide a real opportunity for private sector investors and developers to access areas of the Saudi real estate market that were previously only available to the public sector. The situation, however, is expected to shift with an increased use of PPPs in the aviation, housing, education and healthcare sectors of the real estate market over the next five years.
“There is an increased demand for reforming infrastructure across Saudi Arabia, which then provides a great incentive to attract more private sector involvement and in turn investment,” said Eng. Ibrahim Albuloushi, National Director and Country Head, JLL, KSA.
“With the government now striving to move away from oil dependency and introducing the NTP and the Saudi Vision 2030, the PPP model provides an important framework for both international and regional investors and developers to source a wide range of opportunities in the housing, education and healthcare sectors of the Saudi market,” he added.
Saudi Arabia has the highest value of PPPs in the region amounting to 18 projects announced to date totaling an investment of $42.9 billion. The current pipeline of projects reflects the willingness of the private sector to enter PPPs despite the lack of a structured legal environment. However, in order for PPPs to transition smoothly and become successful entities, the Saudi regulatory framework needs to evolve and undergo development.
"The legal and regulatory frameworks in Saudi Arabia continue to evolve and undergo development to provide an environment that will encourage and facilitate the use of the PPP model," said Basma Khashoggi, Senior Legal Consultant, DLA Piper.
"While there are still challenges to overcome, progress has been made over the past 18 months in this regard and there is significant continued interest in PPPs from both the public and private sectors. As the report highlights, the developing nature of the legislative structure has not deterred investors and developers from entering the PPP market early to explore the potential opportunities in this space but some concrete steps will be needed in the near future to maintain this momentum," she added.