Slowdown said to worsen Saudi Arabia’s housing shortage

A reduction in government spending, along with delayed or cancelled real estate and infrastructure projects will continue to impact the growth of the real estate sector in Saudi Arabia, exacerbating the shortage of housing across the country, global property consultancy Knight Frank said in its latest report.

However, key infrastructure projects that are underway--along with suitable reforms--are likely to boost the country’s residential real estate sector in the future, the report added.

“Over the medium to long term these development strategies are expected transform cities for the better, improving the quality of life, affordability, safety and health of local communities,” Knight Frank said.

The report, which studied the residential market in Riyadh, Jeddah and the eastern province, said major cities have seen a shift in demand from sales to rentals. It added that the introduction of tax on vacant land and revision of the mortgage laws are expected to revive sales.

Demand in Riyadh will continue to be concentrated at the mid-to-lower end of the market in the recent future, as the city’s population is estimated to grow at 2 percent per year over the next couple of years.

“Concerns remain over the capacity of the development pipeline and the type of product that is being delivered to the market,” the report noted.

Rental rates increased in the city, while sale prices remained subdued. Plus there was a 10 percent year-on-year decline in the number of residential transactions in the first quarter of 2016.

Jeddah is likely to see residential growth in areas surrounding the Kingdom Tower and Jeddah Economic City, along with South Obhur and near the airport.

“Rental rates in Jeddah increased on the back of a shift in demand from sales to rental property. Consequently, average sale prices remained flat as the volume of residential transactions in Jeddah decreased by 8 percent (Q1-16 versus Q1-15),” the report said.

Dammam and Khobar, which have seen a population boom over the past two years, will see slower growth in demand as weak oil prices pressure the labor markets, which are dominated by expatriates.

Rental rates in the eastern province remained stable over 2016, though in medium- to long-term the rental demand is expected to cool off.

The sales market is expected to remain positive, particularly for residential property in the south of Khobar.