Saudi aus­ter­ity to af­fect home own­er­ship drive Hous­ing prices could drop as much as 30%

Kuwait Times - - BUSINESS -

Saudi Ara­bia’s aus­ter­ity drive will pres­sure peo­ple’s abil­ity to buy their own homes and could push hous­ing prices in some seg­ments down by nearly a third, the lo­cal di­rec­tor of real es­tate ser­vices firm JLL said yes­ter­day. As low oil prices strain state fi­nances, the government is be­ing forced to cut spend­ing and raise fees and taxes, hurt­ing con­sumers’ dis­pos­able in­comes. Last month it an­nounced cuts to al­lowances for em­ploy­ees in the public sec­tor, where about two-thirds of Saudis work.

Such mea­sures could slow government ef­forts to boost home own­er­ship and Jamil Ghaz­nawi told the Reuters Mid­dle East In­vest­ment Sum­mit that prices of low- to mid­dlein­come homes could fall by as much as 30 per­cent. “Be­cause of a lack of af­ford­abil­ity and pur­chas­ing power and now as we see, reduction of salaries for government em­ploy­ees we fore­see fur­ther pres­sure on af­ford­abil­ity,” Ghaz­nawi told the Sum­mit, tak­ing place in cities across the Mid­dle East. “The de­mand is there, but the ques­tion is: Do these peo­ple have money to buy?” Hous­ing and land prices have al­ready dropped by as much as 10 per­cent and the fall could reach 30 per­cent if land prices con­tinue to pull back from in­flated lev­els, Ghaz­nawi added.

Ghaz­nawi es­ti­mated the short­age of low- and mid­dle-in­come hous­ing at 1 mil­lion homes, a fig­ure which could in­crease be­cause of Saudi Ara­bia’s young and growing pop­u­la­tion. Over the past year, author­i­ties have taken sev­eral steps to im­prove sup­ply, in­clud­ing the in­tro­duc­tion of a tax on un­de­vel­oped ur­ban land to force more land into the mar­ket, li­cens­ing a na­tional home fi­nance com­pany, and sign­ing mem­o­ran­dums of un­der­stand­ing with lo­cal and for­eign firms to build tens of thou­sands of units.

But the pace of con­struc­tion has been slow, partly be­cause po­ten­tial buy­ers have found it hard to af­ford to pur­chase and be­cause the fi­nances of the con­struc­tion sec­tor have been weak­ened by government spend­ing cuts.

As a re­sult, small and mid-sized de­vel­op­ers - who pro­vided 85 per­cent of the stock in the mar­ket have slowed their ac­tiv­ity over the past year and a half, Ghaz­nawi said. In late 2014, the Saudi cen­tral bank in­tro­duced a rule im­pos­ing a 70 per­cent loan-to-value ra­tio for home loans, aim­ing to pre­vent ex­ces­sive lever­ag­ing in the real es­tate sec­tor. But Ghaz­nawi said the rule had lim­ited com­mer­cial banks’ abil­ity to of­fer prop­erty loans. “There are only eight mort­gage com­pa­nies with to­tal loans of about 5 bil­lion riyals ($1.3 bil­lion), com­pared to banks which had pro­vided over 170 bil­lion riyals of mort­gages over the past seven years.” The net re­sult of aus­ter­ity poli­cies and financing curbs, Ghaz­nawi said, is that hous­ing projects which in the past might have been sold out in two years would now take much longer.—Reuters

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