Saudi Arabia will face growing pressure to revise its home financing rules this year as housing is becoming increasingly unaffordable for a majority of the population, JLL has said in a new report.
The real estate consultancy firm said there is pressure to reduce the down payment requirement from 30 percent to 15 percent.
JLL said any significant reform in reducing the cost of home finance will positively impact the real estate market,adding that a change in the mortgage law will also give impetus to a market witnessing continued decline in sales activity.
Under the current circumstances, demand has shifted towards the rental market which is witnessing high rents but housing finance reforms could alter this scenario, JLL said.
With over 60 percent of all Saudi households in the middle income segment, there is a huge demand for affordable housing across the kingdom, with JLL saying there will be more efforts seen towards empowering low and middle income families and addressing their basic needs such as affordable housing.
Craig Plumb, head of research, JLL MENA said: “Saudi Arabia faces a challenging macroeconomic situation and the government is currently taking proactive measures to readjust the economy to a new normal of lower oil prices and a stronger dollar.
"Various real estate stakeholders will need to take a pragmatic approach and work together towards realigning themselves and filling critical gaps in the market.
"In the longer term, any structural change the government is embarking upon will contribute positively towards the real estate market. Overall, the kingdom remains the GCC region’s largest economy and there is immense potential for the development of the real estate market despite short term challenges.”
The report also said that in 2016, a challenging macroeconomic environment - low oil prices and a stronger US dollar - will continue to impact the Saudi real estate market, along with a slowdown in GDP, government spending and overall liquidity.
"Such an environment is an opportunity for the government to make structural changes and embark upon a rapid diversification drive which would ultimately have a positive long-term impact on real estate and the wider economy," the report said.
It added: "We have already seen signs of economic reforms such as the opening up of the Tadawul... the 2016 Saudi budget will have implications for the real estate market, and there will be particular opportunities for certain market segments such as affordable housing.”
JLL also noted that plans for a tax on unused land in Saudi Arabia’s largest cities could stimulate further development to address the severe shortage of middle income housing across the kingdom.
The report forecast project delays as a by-product of the slowing market conditions in 2016, which will eventually reduce risk of oversupply.
"This will represent something of a ‘blessing in disguise’ and will help stabilise the market with favourable demand-supply dynamics," added JLL.
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