Sample Business Studies Paper on ROSHN Real Estate Company Analysis

ROSHN REAL ESTATE COMPANY ANALYSIS

 

Executive Summary

The purpose of this paper is to provide an analysis of ROSHN Real Estate Company which is among the leading companies in the Saudi Arabian real estate industry. The paper is divided into three sections, (1) company background and (2) company analysis, and (3) recommendations. The first section discusses the background of the company and the products and services it provides. The second section covers five main sub-sections; (1) stakeholder analysis, (2) market analysis, (3) Porter Five Forces, (4) PESTLE analysis, and (5) Pricing/cost. Public Investment Fund is the main stakeholder in the company. The market analysis reveals a growing demand for housing due to a growing population. Suppliers and buyers have a relatively high bargaining power, whereas there is threat of substitute, new entrants, and high rivalry according to Porter Five Forces analysis. On the other hand, political, economic, legal, social, technological, and environmental factors all support the growth of real estate companies in the country. The pricing of real estate is expected to increase in the future due to increasing demand despite a drop in prices during the first quarter of 2021. Two recommendation for improvement of real estate include adopting technological innovations such as smart cities as well as support crowd funding.

 

ROSHN Real Estate Company Analysis

Company Background

ROSHN Real Estate is a Saudi-owned real estate company that was established in 2019 by the Public Investment Fund (PIF) of Saudi Arabia as a national community developer. ROSHN was fully incepted in 2020 to start its projects and to elevate the real estate market in the Kingdom to another level. Its mission is to improve the quality of life in Saudi Arabia and to aid the government’s initiatives to increase the number of Saudis who own their own homes. ROSHN creates neighborhoods that consider both the past and the future of the Saudi people. Located to the south of Riyadh’s King Khalid International Airport, SEDRA is the first project of its kind that was completed by the company. It is an integrated, walkable community with a variety of essential facilities like parks, hospitals, bike paths, medical centers, schools, mosques, and stores all within easy walking distance of each other.

Procurement Process

A large-scale capital program requires a more involved method that makes use of outside expertise during the procurement process. The initial step is for the project team to provide a design brief outlining the concept, including the building, equipment, and siting requirements, as well as providing an approximate pricing range. At this point, interested parties are welcomed to participate in the design process of a project. The project team reviews the expressions of interest, narrowing it down to a shortlist considerable organization to present their plans, management strategies, professional resources, and fees (Greenhalgh & Squires, 2011). After selecting a firm, the company will enter into a contract with them, and the architect will likely take on the role of project manager and head the design team. Initial concepts will be tested for functionality, compatibility with existing infrastructure, and aesthetic appeal to the target market. As soon as the best possible arrangement has been decided upon, the design team will get to work on the drawings and data sheets for the project, in this case villas which is the main product offered by ROSHN. The architect’s staff and the consulting engineers will create the structural, mechanical, and electrical blueprints that will back these up. Once the designs and specifications have been finalized, construction firms interested in the project will be allowed to bid for approval (Greenhalgh & Squires, 2011). Once again, the project team and architect review applications and shortlist the best contractors for a project. The presentations given by the finalists assist evaluate their expertise, quality, and dedication in this niche market. Once all bids have been received, the broader project team will assess them for both quality and cost before awarding the construction contract to the lowest responsible bidder.

Products/Services

ROSHN is a national real estate developer and a PIF portfolio firm that aims to provide desirable places to live for Saudi citizens. In accordance with Vision 2030 and PIF goals, the firm is seeking to expand the percentage of Saudis who own their homes to 70% by capitalizing on possibilities in the real estate market created by the changing demand for housing in the Kingdom (Alqahtany, 2020). Modernized and interconnected residential neighborhoods are the key design focus of ROSHN in four regions and more than nine large cities. Through strategic relationships with local and global institutions, these communities will unleash new growth potentials for local content, boosting the expansion of the Kingdom’s real estate market. According to Public Investment Fund (2021), since its inception in the middle of August 2020, ROSHN has announced its first residential neighborhoods in Riyadh, totaling more than 20 million square meters and more than 30,000 housing units. The main products/service offered by the company relate to residential homes/villas which are entirely part of the real estate industry in the country.

Company Analysis

Stakeholder Analysis

Several stakeholders are involved in any real estate project starting from the design concept to the finished product. First, an architect is required to provide drawings and design for the new structures as part of the planning process. However, the architect will still be involved throughout, sometimes in their own right and often ‘novated’ to the building contractor selected by way of a ‘design and build’ contract. Another major stakeholder is the contractor. The contractor is responsible for transforming a vacant plot of land into the desired finished product as shown in an architect’s plans. As many ways as there are to appoint contractors, there are standard form contracts for them (such as those provided by RIBA). The investor/developer benefits from having one point of contact for all of the professionals on the team in the case of a dispute, therefore the principal contractor often absorbs all or most of the professional staff.

Legal policies and regulations are often involved when designing and developing real estate projects. As such, having a lawyer as one of the stakeholders is a fundamental element that helps in eliminating any possible legal consequences that might follow. Good attorneys will save their clients time and money by foreseeing potential legal hurdles and developing strategies to overcome them. Property agents are yet other stakeholders that are involved in the development of real estate projects. Their role is to promote the finished designs and property to the public. A buyer or occupier of an appealing plan may often commit to a building before construction, often at the design stage, either by signing a pre-let or pre-purchase agreement. A project manager’s job is to oversee a set of tasks. Developers often employ people like this to keep an eye on things and make sure the plan is being carried out as intended. The employer’s representative must not only fulfill this role, but also face pressure from the contractor to approve crucial aspects of the building works before providing interim payments. Additionally, they will issue a certificate stating that the building is “practically complete,” marking a significant milestone that sets the clock ticking on the elapsed time before leases and/or purchases may be issued. Project might also require a financier whose role is to provide the required funds needed to design a specific project and see it through up to completion.

Market Analysis

In 2018, the real estate and housing sector in Saudi Arabia experienced a significant drop in demand. The volume of real estate transactions in the major cities of the Kingdom, however, grew dramatically in 2019. It is anticipated that the residential market would improve over the next several years as a result of the government’s emphasis on real estate as part of the economy’s diversification plan. The population of Saudi Arabia is around 32 million, and it is growing at a pace of over 2% annually (Land Sterling, 2022). A large proportion of Saudi Arabia’s population is comprised of first-time buyers in the middle class, since young people make about 45 percent of the population. An extra 5.5 million foreign workers in the country have increased the strain on the housing market (Land Sterling, 2022). The government is making an effort to build cheap housing, putting pressure on banks to offer more home financing options because of the high demand from young Saudi locals and foreigners for apartments and low-cost homes. Housing for the middle class and below remained in great demand in Saudi Arabia in 2019. This was especially true in the major cities of Jeddah, Riyadh, and the Dammam Metropolitan Area (DMA).

Jeddah’s current housing stock caters mostly to those in the middle class, with most new constructions located in the city’s northern and eastern quadrants. Nearby Al Khobar has seen significant residential growth in the Al Khamra and Al Aziziyah neighborhoods, although the city’s center portions are unsuitable for building. To achieve its objective of raising homeownership among Saudi nationals to 60% by 2020 and 70% by 2030, the Saudi Housing Ministry unveiled a plan to establish roughly 19,500 residential units for its inhabitants under the “Sakani” housing development initiative (Land Sterling, 2022). By encouraging more people to become homeowners, these programs hope to boost Saudi Arabia’s residential real estate sector. The present demand substantially exceeds the available supply; thus, residential demand is expected to rise more over the next few years. This implies that ROSHN has potential of exploring this market gap by providing affordable housing to Saudi locals and foreigners. As the country’s economy continues growing, so does the demand for ultra-modern and luxury homes, villas, hotels and residentials which is an advantage for the real estate industry.     

Competitive Analysis Using Porter’s Five Forces

The uniqueness of the real estate market rests on the high input, high risk, and high yield it rewards its investors. However, in the past and up until now, any ordinary citizen can enter the field due to its attractiveness and less regulation and policies. For instance, the Saudi Arabian federal government introduced the Wafi Program that allowed developers to be granted licenses once their human and organizational capabilities as well as financial abilities were verified (Al Surf, Susilawati & Trigunarsyah, 2014). This means that competitors can easily enter the market once they pass these criteria. Additionally, the fact that consumers’ preferences is less demanding on differentiated products is another reason for attracting new entrants in the sector. This, in turn, has created an open entry for competitors although they still compete in small scale development, where they add little value and grow at a much slower rate. Since new competitors pose a serious threat, established real estate firms need to differentiate themselves by targeting narrower markets.

Substitutes pose a risk since the Saudi real estate industry is still developing, with shifting demographics among both target consumers and the foundations of the country’s specific real estate demand. Consumers who have been attuned to the importance of a beautiful design and great finishing are more likely to be willing to replace their present house with a newer, better one, especially in light of the recent improvements made to the housing market by the Ministry of Housing (Al Obaid, 2020). In addition, those with limited financial resources may prefer to lease rather than buy a home. When it comes to commercial use, however, developers and business owners are feeling the effects ecommerce on real estate location value. This is because it has lost its luster as a result of the shift in focus to the creation of experiences as the primary means of attracting customers and determining what developers should take into account when designing for a given business’s environment. Hence, the risk of substitute products is relatively high in the market.

Suppliers in some sectors have enough clout to exert pressure on businesses by threatening to raise prices or lower the quality of their products and services. Supplies in real estate include land, construction machinery, and materials. Although most material and equipment suppliers have little leverage in negotiations, providers of specialized materials and equipment like virtual reality of design, 3D modular, and 3D printing do. However, the land provider has the most leverage; although developers buy the land, they are still subject to the government’s land policy and limited in how they can use it (Al Surf, Susilawati & Trigunarsyah, 2014). Since the cost of buying or renting a plot of land accounts for the vast majority of the overall investment in real estate, the landowners have considerable negotiating power because of the scarcity of this resource. The government has lately moved to stabilize housing prices. For this reason, public funding and regulations have an impact on the real estate industry. This means that suppliers in the country, especially landowners, have a better bargaining power over real estate companies.

Organizations, government agencies, individuals, and families are all potential buyers in the real estate market, making customers the single most important factor in a business’s success. When making a major purchase, customers in both the private and public sectors become extremely picky, taking their time to compare prices and amenities. As such, consumers have a higher leverage for bargaining on what they want since there are several alternatives to choose from as opposed to markets that are monopolized. The real estate industry in Saudi Arabia is not a monopoly and several key players compete in the sector. As such, the bargaining power of the consumers is high as compared to other sectors where competition is low. Additionally, since the country’s real estate sector is still growing, there is potential for new entrants that come up with new design that appeal better to the target customers.

To survive and thrive in the real estate market, competitors must provide comparable or even identical houses to buyers in the same geographic region. Few variables, including the number of competitors, the size of competition power for each, product differentiation, supply and demand, and market concentration, have a significant impact on the level of competition in the real estate business. Real estate business rivalry heightens when there are many firms vying for buyers’ money, each with roughly the same amount of power and little differentiation in their offerings and the market’s supply of raw materials (Alqahtany, 2020). Existing competition within the industry is the most influential of the five forces; consumers want more business groups operating under the same constraints in order to compete in their favor; competition comes not only from companies within the real estate industry, but also from those operating in other countries and regions; and competition comes not only from within the real estate industry, but also from companies operating in unrelated industries that form alliances with existing businesses in order to compete. As such, ROSHN is facing higher rivalry from other key player in the industry. Some of the top leading real estate companies in the country include Regus, Distinguished Real Estate, Jenan Real Estate, and Servcorp-UAE among others.

PESTLE Analysis

One of the most important reasons that led to the development of the Saudi Arabian building and real estate sector was the government’s dedication to the industry. Despite the global economic downturn, the Saudi government maintained its commitment to the building industry by investing USD 80 billion into it (Al‐Malkawi & Pillai, 2013). Those funds were allocated with the intention of accelerating the progress of development and diversification initiatives in Saudi Arabia. The Kingdom of Saudi Arabia is prosperous and secure, with cordial ties to its neighbors and the rest of the world. The general political climate is healthy and favorable for construction and all other companies since there is no risk of war, invasion, or political upheaval. The Saudi Arabian administration has ensured the safety of its citizens, therefore the recent wave of political unrest in the area does not pose a threat. This allows the real estate industry to thrive.

The Saudi Arabian construction sector has benefited greatly from the country’s improved economic stability. Raw material and inflation prices being low are two of the main reasons for this steady economy. The real estate industry in Saudi Arabia will thrive thanks to the government’s support and investment. The Saudi economy is one of the top 20 largest in the world. Consistently, high demand for homes inside the country, growing numbers of commercial construction projects, and a flourishing hotel sector are all factors that should contribute to the industry’s expansion in the future years (Alfouzan, 2013). Also, after being married in Saudi Arabia, the couple is expected to maintain separate households. The combination of these factors, the country’s overall affluence, and the Saudis’ well-documented predilection for single-family villas over flats has created a housing bubble that is nearly unprecedented in its scale.

Societal and cultural considerations are highly valued in Saudi Arabia’s building sector. This is seen in the increasing number of young people entering the construction workforce. Long-term expansion of the building sector is also necessitated by rising populations. Socio-cultural norms in the country encourage growth of families which is a positive factor that promotes a growing demand for the real estate industry. Saudi locals are known to take pride in large families. As such, there is a continuous growth for more real estate development to cater for the growing population.

The building business in Saudi Arabia is booming because to the availability of cutting-edge tools and equipment. The availability of this technology has helped Saudi Arabia entice a number of investors who see potential in the country’s expanding construction sector. The construction and development industry in the country has embraced the use of cutting-edge technology in advancing the quality of designs that are offered to potential buyers in the country (Alfouzan, 2013). This has created a conducive environment for the expansion of real estate development since the inception of Vision 2030 by the Ministry of Housing which aims to ensure that at least approximately 70% of residents in the country secure a home. Also, technology has played a part in appealing to the different taste and preferences of customers.

With the goal of bolstering the construction industry, Saudi Arabia streamlined its legal framework to remove obstacles that had prevented enterprises from getting started on building projects. The government of Saudi Arabia also authorized the launch of new enterprises funded entirely by outside investors (Alola, 2021). With the goal of increasing residential demand and consequently house finance, mortgage legislation has been relaxed. A good example is the introduction of the Wafi Program that makes it easy for interested real estate developers and investor to get a federal license to initiate their projects.

Environmental factors in the country have been given top priority by the government. The Saudi Arabian government intends to consider environmental factors by allocating around USD 39.9 billion toward the development of “smart buildings” that can facilitate long-term sustainability and minimize carbon dioxide emissions (Housing.gov.sa, 2019). The Saudi Arabian government hopes that by erecting these “smart” structures, they would be able to cut down on garbage and water use. Such amenities will reduce environmental impact and maintain green spaces, thus, positively influencing the environment.

PESTLE Components
Political ü  Political stability

ü  Support from the government

Economic ü  Improving economic stability

ü  Favorable prices for raw materials

ü  Growing middle-class

Social ü  Socio-cultural norms encouraging big families
Technological ü  Availability of cutting-edge technology
Legal ü  Favorable legislations

ü  Introduction of the Wafi Program

Environmental ü  Inception of smart cities and homes

ü  Investment of government on smart buildings

 

Figure 1: PESTLE Framework for the Saudi Arabian Real Estate industry.

Pricing/Cost

The pricing of villas, homes, and apartments is relatively competitive in the Saudi Arabian market. Sales prices for apartments in Riyadh rose by 4.4% to an average of SAR 3,453 per sqm in the first quarter of 2021, while those for villas declined by 1.6% to an average of SAR 3,753 per sqm (Land Sterling, 2022). Apartment prices in Jeddah increased by 6.5% to SAR 3,944 per sqm during the same period, while villa prices fell by 6.3% to SAR 5,023 per sqm. The Dammam Metropolitan Area (DMA) housing market showed mixed results in the first quarter of 2020, with average apartment prices rising by 3.2% to SAR 2,045 per square meter but average villa prices falling by 7.9% to SAR 3,253 per square meter (Land Sterling, 2022). Strong government measures are anticipated to increase demand for residential dwellings in the first quarter of 2021. In January 2021, there was a record-breaking increase of 33,000 new mortgage contracts to people.

The Saudi Arabian Monetary Agency (SAMA) reports that mortgages now reach SAR 16.4 billion. Strong government support is anticipated to increase demand for residential dwellings in the first quarter of 2021. The increase of 33,000 contracts for home mortgage loans in January 2021 was the highest monthly increase on record. Value of mortgages increased to SAR 16.4 billion, per the Saudi Arabian Monetary Agency (Land Sterling, 2022). In an effort to increase demand for home mortgages, several banks have lowered their interest rates to around 1%, with the industry average sitting at around 4.50% (Land Sterling, 2022). Several factors contribute to the high cost of housing in Saudi Arabia, including the country’s surplus of oil production and the resulting increase in the country’s money supply, the government’s inability to promote the country’s housing market, and the high mortgage rates charged by the country’s financial institutions (Saud, 2020). However, steps have been taken to solve this problem of excessive home costs. The smart cities initiative and the use of new, creative construction technologies that have been shown to reduce construction costs are two examples of these types of initiatives.

Conclusion

            In summary, the real estate sector in Saudi Arabia has show significant potential for improving and attracting more entrants. The political, legal, economic, technological, and social factors in the country provide favorable conditions for companies such as ROSHN to compete effectively. With its main stakeholder as the Public Investment Fund, ROSHN has grown to become an established competitor for achieving vision 2030. Although there is the threat of new entrants, substitute, and high competition as well as high bargaining power of suppliers and buyers, the market is still lucrative. The pricing of homes, residentials, and villas is still expected to increase with the growing demand for real estate development in the country.

Recommendations

            In spite of the aforementioned causes of rising home prices in the country, efforts have been made to propose remedies that would result in more reasonably priced homes across the country. ROSHN can considered using sustainable practices are now widely used in the building sector in Saudi Arabia. For instance, vast majority of already built homes have a high rate of both energy and water use. ROSHN can resolve this problem by incorporating sustainability in the building sector by designing homes in a manner that will contribute to water and energy savings (Saud, 2020). It is likely that the planned changes would drive up the cost of a home’s initial purchase. Despite the steep initial investment, long-term savings on utilities would more than make up for the price tag. This would help in the pursuit of generally acknowledged sustainable principles. Greenhouse gas emissions are greatly impacted by the construction industry, which is why sustainable practices are increasingly being used. Houses that are both more affordable and less harmful to the environment might be built with the help of such legislation. Research promotes the need for more reforms in the construction industry, such as the investigation of energy-saving best practices from across the world.

The rising culture of crowd funding, where a group of people with a shared interest in home ownership pools resources, may provide a solution to the high cost of traditional mortgages. While not all customer might have the resources to purchase residential homes and afford villas, ROSHN needs to introduce this type of strategy to influence its sales. Land for housing is purchased using pooled funds. In recent years, this alternative to traditional property ownership has grown in popularity. The government should back projects like this by-passing laws that make crowd funding easier (Saud, 2020). Because traditional banks favor working with high-income earners, this will aid in solving the problem of low-income residents being unable to get homeownership.

 

 

References

Al Obaid, H.M.A., 2020. Factors determining housing demand in Saudi Arabia. International Journal of Economics and Financial Issues10(5), p.150.

Alfouzan, Abdulaziz Saleh., 2013. Analyzing the Factors that Lead to Housing and Construction Cost Escalation: A Case Study Focused on Riyadh, Saudi Arabia. Western Kentucky University: Masters Theses & Specialist Projects. Paper 1231.

Al‐Malkawi, H.A.N. and Pillai, R., 2013. The impact of financial crisis

Alola, A.A., 2021. Evidence of speculative bubbles and regime switch in real estate market and crude oil price: Insight from Saudi Arabia. International Journal of Finance & Economics26(3), pp.3473-3483.

Alqahtany, A., 2020. Affordable housing in Saudi Arabia’s vision 2030: new developments and new challenges. International Journal of Housing Markets and Analysis14(1), pp.243-256.

Al Surf, M., Susilawati, C. and Trigunarsyah, B., 2014. The role of the Saudi government and the Saudi building code in implementing sustainable housing construction in Saudi Arabia. In Proceedings of the 20th Annual Pacific Rim Real Estate Society Conference (pp. 1-19). Pacific Rim Real Estate Society.

Greenhalgh, B. and Squires, G., 2011. Introduction to building procurement. Routledge.

Housing.gov.sa. (2019). Building Technology Stimulus Initiative | Ministry of Housing. [online] Available at: https://www.housing.gov.sa/en/initiative/btsp

Saud, Alhawil Abdulaziz and Suhong li., 2020. Analysis of the Influencing Factors of Housing Price in Saudi Arabia. Business and Economics Journal. DOI: 10.37421/2151-6219.2020.11.399

Land Sterling, 2022. Spotlight on Saudi Arabia’s Real Estate Market. Cityscape Intelligence. https://www.cityscape-intelligence.com/sites/cityscape-intelligence.com/files/CSI_Land%20Sterling_KSA%20Report%202021.pdf

Public Investment Fund, 2021. Public Investment Fund Program 2021-2025. Vision 2030. https://www.vision2030.gov.sa/media/mdppqvmv/v2030_pif_2025_en.pdf