Idle Land fees regulation to drive real estate development: SNB Capital

SNB Capital issued a report on the impact of Idle Land fees regulation, saying that the new regulation will likely drive real-estate development, increase the supply of residential, commercial and office units and normalize prices mainly within highly inflated areas and segments.

“As land holding costs will increase, we believe land hoarding/speculation practices will decline,” the brokerage said.

TASI-listed developers, construction and materials companies are anticipated to be the key beneficiaries, it noted.

SNB Capital further stated that the average decline in prices is forecast to moderate due to high demand and the strategic location of idle lands within the city.

“We also expect the impact on ready units to be limited as the new supply would take a few years to enter the market. Moreover, we expect a gradual decline in residential, office and commercial rentals,” the brokerage said.

Going forward, the regulations are likely to be implemented in Jeddah and Dammam (if needed).

Additionally, a regulation to reform the landlord/tenant relationship is expected to be announced soon.

The key impacted sectors by the new regulation are real estate, developers, contractors, construction, banks and manpower.

“We expect the key beneficiaries to be developers and contractors as demand will be strong for their services. The construction sector (cement, cables, steel and other materials) will also benefit (both in terms of volumes and prices), but the positive impact is expected to start gradually. The manpower sector is also expected to be a main beneficiary,” SNB Capital added.

Moreover, the banking sector will play a vital role in financing the projects and providing mortgages upon completion.

The brokerage also forecasts real estate-focused companies to be negatively impacted due to lower prices, lower demand for idle lands and higher costs.