Affordable Housing Development in Saudi Arabia: A Feasibility Worked Example

An illustrative feasibility for a 200-apartment affordable housing project in Saudi Arabia, showing how thin margins react to cost and price changes.

Affordable housing is central to the Housing Program's target of 70% home ownership among Saudis by 2030, and in many projects developers partner with the National Housing Company and sell through the Sakani platform. Demand is deep, but prices are capped in practice by what first-time buyers and mortgage finance can support, so margins are thin and highly sensitive to cost. The worked example uses illustrative inputs to show that sensitivity before any land is committed.

The situation

A developer plans 200 apartments for first-time Saudi buyers on a plot in a growing district, selling off-plan under a Wafi licence with buyer payments held in escrow and released against construction progress.

Assumptions (illustrative)

• Saleable area: 200 units averaging 120 square metres, 24,000 square metres in total.
• Assumed gross built area including circulation, services and parking: 28,000 square metres.
• Assumed land cost: SAR 20,000,000.
• Assumed construction cost: SAR 2,200 per square metre of gross area.
• Assumed design, approvals and supervision: 8 per cent of construction cost.
• Assumed sale price: SAR 4,000 per square metre of saleable area; sales and marketing at 2 per cent of revenue.

Step 1: Revenue

24,000 multiplied by SAR 4,000 equals SAR 96,000,000.

The price per square metre is limited by what target buyers can finance and by competing projects on Sakani, not by what the developer would like.

Step 2: Construction cost

28,000 multiplied by SAR 2,200 equals SAR 61,600,000.

Gross area, not saleable area, drives cost, so every square metre of corridor and lobby reduces margin.

Step 3: Soft and sales costs

8 per cent of SAR 61,600,000 equals SAR 4,928,000; 2 per cent of SAR 96,000,000 equals SAR 1,920,000.

These costs are often underestimated in early feasibility, especially approvals and supervision.

Step 4: Total cost

SAR 20,000,000 plus SAR 61,600,000 plus SAR 4,928,000 plus SAR 1,920,000 equals SAR 88,448,000.

Land is close to a quarter of total cost, which is why land partnerships matter so much in affordable housing.

Step 5: Profit

SAR 96,000,000 minus SAR 88,448,000 equals SAR 7,552,000, about 8.5 per cent on cost.

A thin margin before financing costs, Zakat or tax, and any delay in sales.

Step 6: Price test

At SAR 3,700 per square metre: revenue 24,000 multiplied by 3,700 equals SAR 88,800,000; sales cost SAR 1,776,000; total cost SAR 88,304,000; profit SAR 496,000.

A 7.5 per cent price reduction removes more than nine tenths of the profit.

What changes the answer

• Construction cost: a 10 per cent increase adds SAR 6,160,000 plus about SAR 493,000 in soft costs and leaves roughly SAR 900,000 of profit.
• Land structure: land contributed by a partner and paid from sales reduces upfront capital and financing cost.
• Sales pace: slow off-plan sales delay escrow releases and increase interest during construction.
• Design efficiency: raising saleable area as a share of gross area improves margin without touching price.
• Mortgage availability and rates for target buyers, which set the ceiling on price.

What the numbers tell you

• Affordable housing works on volume, repetition and efficiency, not on high margins.
• Secure land on partnership or deferred terms where possible.
• Control gross area and specification tightly from concept design.
• Confirm Wafi licensing and escrow rules with REGA before launching sales.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

If a Vision 2030 programme or market trend is shaping your investment case, Domira can test it against real land, construction costs and local demand in the city you are considering before you commit capital.