Saudi residential market expected to pick up
Saudi Arabia’s residential market is expected to pick up in 2018 thanks to better economic growth and new government initiatives after the market dipped last year, according to a report from consultancy Knight Frank.
“Drivers for the market appear to be positive for the long term, which include favourable demographic dynamics, room for improvement in economic growth from current levels and economic reform programmes placing a focus on real estate as part of the diversification process,” the report said.
“In recent quarters we have seen that residential real estate prices have flattened, which could be an indication that the market has bottomed out and may be close to stabilising following a year of rapid decline.”
Recent government initiatives in support of the real estate sector include the white land tax, new regulations for the use and listing of Reits, an increase in the loan-to-value ratio for first home ownership, and the launch of the Sakani programme for affordable housing.
Property sales and rental prices in Saudi Arabia and other Arabian Gulf states have declined in the past few years because of lower oil prices and a general economic slowdown.
The residential market continued to decelerate in Saudi Arabia last year, with lower levels of transactions and flattening sales prices, Knight Frank said.
“The trend towards a weaker residential market is mainly due to eroding market liquidity, and is exacerbated by a combination of more inherent factors, namely lack of affordability and limited access to financing, supply shortage in the mid-to-lower end of the market and lack of suitability of existing stock,” said Raya Majdalani, a research manager at Knight Frank in the report.
Knight Frank’s Saudi Arabia Residential Market Review focuses on the kingdom’s largest markets – Riyadh, Jeddah and Eastern Province.
In Riyadh, the picture was mixed with sales price growth for apartments rising 36 per cent year-on-year in 2017 but dropping 5 per cent year-onyear for villas.
Transaction volumes in Riyadh overall increased by 15 per cent year-on-year last year, while the total value of transactions dropped 3 per cent compared to a year earlier. The Saudi government delivered about 38,000 new affordable residential products in Riyadh Province last year through its Sakani programme, which launched in early 2017.
In Jeddah, supply is being similarly geared towards middle-income housing to meet the demands of the city’s population, which is expected to grow at an average of 2.5 per cent each year to 2022.
Transaction volumes remained relatively unchanged compared to 2016, the report said, but there was a 21 per cent year-on-year decline in the total value of transactions.