Riyadh residential sales down in Q1 on prudent mortgage rules: JLL

Residential property sales in the Saudi capital, Riyadh, have plummeted since the government introduced tougher home mortgage rules in November, as the kingdom seeks to prevent a housing bubble similar to that seen in Dubai few years ago.

Since November, the volume of villa and apartment sales registered in Riyadh dropped 70 percent and 33 percent respectively, compared to the same time last year, according to a research by JLL consultancy.   

The regulations limit mortgages to 70 percent of the sale price, and led to a shift to the rental market, JLL added. Average villa prices have dropped 2 percent during the first quarter.

Riyadh house sales prices fell 2 percent in the first quarter, compared to the previous three months, while rents rose 2 percent, JLL estimates. 

Rentals continue to grow at between 10 percent and 15 percent.

The Saudi government wants to encourage home ownership and seeks to bridge the housing shortage gap, but the central bank is wary of triggering a banking crisis. Last month, the government said it would impose taxes on undeveloped urban land plots, to force land owners to develop the land and increase supply of affordable housing. But details or timing of the taxes were not clear, contributing to cautious property sales.

Office city wide vacancy rates have remained at 16 percent, while Central Business District vacancies have declined by 1.5 percent to 8 percent, according to JLL. New office buildings supply is expected to enter the market in 2015 and 2016, with the delivery of ITCC and some office towers in King Abdullah Financial Center.

The retail sector showed steady growth in the first quarter of 2015. Vacancy rates dropped 1 percent, and rentals increased 0.5 percent. Alia Plaza on Al Thumama Road was delivered this year, while other projects have been delayed, stocking supply in 2016 and 2017.

Regarding hotels, major projects are expected to be completed in 2015, including Hilton Riyadh Hotel & Residences and Monenpick Hotel in the business district. Year to February, occupancy rates remained at 64 percent, while average daily rates have increased 2 percent, compared with the same period last year.

DoubleTree by Hilton was the only hotel delivered during the first quarter of 2015.