Saudi real estate set for long-term growth on government stimulus
by Paromita Dey
The long-term prospects of Saudi Arabia's real estate sector remain optimistic due to the various government initiatives aimed at stimulating the market.
Most sectors have remained subdued as highlighted by lower activity levels in 2018, but the implementation of various urban regeneration initiatives including mixed-use communities and large-scale infrastructure projects may act as a catalyst for the real estate market.
“While we see this current market conditions prevailing in the short-term, we remain broadly positive as a result of government initiatives looking to address key challenges restraining the residential sector in Saudi Arabia including high land prices, supply/demand imbalances and affordability among others,” Raya Majdalani, research manager at Knight Frank, said.
“Regulatory efforts such as the white land tax, the large housing schemes and the mortgage law, display clear intent from the government to engage with the issues facing the residential market in the Kingdom. While efforts are slowly filtering through, we see these initiatives as a step in the right direction for a more active real estate market over the coming years,” she added.
The better outlook comes as the upcoming Riyadh Metro will bring new travel options to commuters and reduce urban transit problems in the rapidly growing city. Riyadh’s population is expected to grow from seven million in 2018 to 8.6 million by 2030, according to Oxford Economics.
“As properties within proximity to the metro stations are likely to become more favorable, we can expect developers to optimize the land space surrounding it by developing high-density residences, commercial and leisure spaces within walking distance from the metro. This, in general, will reduce motorization rates and promote sustainable growth of the city, in line with Saudi Vision 2030’s goal of building smart and sustainable cities,” Dana Salbak, associate UAE, KSA & wider MENA at JLL, said.
Public Investment Fund (PIF)
“The initiatives being taken by the PIF, again driven by the Vision 2030, provide not only direct real estate opportunities but focus on the physical and social infrastructure that will provide the base for future growth of the markets,” said Simon Townsend, senior director, Strategic Advisory, CBRE Middle East.
With a wide-net approach to development (exemplified by its consideration of investment opportunities in both the Kingdom’s major and minor cities and across a multitude of asset classes), PIF’s investments are expected to unlock new sub-asset classes, intensify competition in private sector development, and raise the general quality of real estate development.
With social demographics changing rapidly and the question of affordability increasingly in the limelight, housing solutions with a mixture of unit types and sizes that cater to the younger demography are becoming more popular than the traditional spacious apartment units or villas.
“Our studies have shown that investors and developers in Saudi Arabia are responding to a general shift in home buyers’ preferences towards apartments, which has largely been a function of growing affordability constraints and shrinking household sizes,” Bilal Siddiqui, associate director, Advisory services at Colliers International, said.
He further highlighted data from the General Authority for Statistics (GaStat), which pointed out that the share of apartments from Riyadh Province’s housing units grew from approximately 40 percent to 50 percent between 2010 and 2017. “In contrast, during the same period, villa ownership remained relatively stable,” Siddiqui added.
On a macro level, analysts expect 2019 to be a transitional year for the Saudi real estate market, marked by the government’s highest expansionary fiscal budget to date.
“2019 is expected to witness an uptick in activity on the back of strong reform momentum and increased government spending as stipulated in the 2019 budget announcement. This will reflect positively on the real estate sector as commercial activity picks up and foreign investment increases,” Salbak said.
“Greater collaboration between the public and private sectors, exemplified by the establishment of public-private partnership (PPP) models will vitalize the property market. This includes Ministry of Housing’s collaboration with private sector developers and contractors for the development of large-scale residential masterplans,” Siddiqui added.