Demand for lower- and middle-income housing remains strong in Riyadh and Jeddah despite current slowdown in the market and subdued performance over the last few years, KPMG Al Fozan & Partners said in a recent report.
Riyadh is expected to receive an additional supply of 30,000 residential units in 2019, comprising a 2.3 percent increase over and above the current stock. The current supply in the capital stands at 1.3 million.
"The majority of the new supply is focused towards the north and the east of the city while the centre is becoming saturated with various developments, as vacant land parcels become scarce," said Firas Hassan, head of real estate at KPMG Al Fozan and Partners.
The capital's villa market is expected to see sale prices and rental rates decline later this year, in line with the trend that started following the implementation of the white land tax.
The northern and central areas of the city such as Al Ghadeer, Al Nada, Al Malga, and Al Wurud districts reported the highest rental rates. Sale prices of new villas in the central part of Riyadh ranged between SAR 4,000 and SAR6,500 per square metres while the northern side was in the range of SAR 2,300 to SAR 5,500 per sqm.
However, the popularity of apartments is increasing relative to previous years in the capital as a higher number of new developments include apartments.
Jeddah
According to KPMG, the Jeddah housing market is characterized with low homeownership rate, hampered by affordability constraints, and shortage in supply of residential units targeting lower and middle-income segment.
With a current supply of about 810,000 residential units, the city is expected to receive a new supply of around 20,000 residential units in 2019–20, registering a 2.5 percent increase to the current stock.
"The market is witnessing a shift in the trend as a proportion of the middle-income housing units are significantly increasing in the forthcoming supply. Majority of these developments are located towards the northern side of the city," said Hassan.
In line with the previous years, the sale prices and rental rates of villas continued to decline in 2018, due to cautious behavior from investors and end-users. The market witnessed a decline of 6 to 8 percent in sale prices, while the rental rates plunged with a relatively higher ratio, KPMG report said. It expects the current market condition will prevail in short to medium term.
In the apartment segment, the report said the Jeddah market had softened further with both rental rates and sale prices witnessed a decline of 8 to 10 percent last year.
"Despite the current slowdown in the market and subdued performance during the last couple of years, the market drivers seem to be positive for the long term, backed by the favorable demographic, and government’s focus on the real estate sector as part of the diversification process,” Hassan said.
As the demand for apartments and small-sized villas/duplexes is expected to remain high, residential community concept (semi-gated complexes) is getting market acceptance, he mentioned.
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