Saudi Arabia’s residential real estate market has remained resilient in the face of the economic headwinds caused by the global coronavirus pandemic, according to the latest report from Knight Frank Middle East.
The Saudi Arabian Real Estate Market Review Q3 2020 revealed that transaction volumes in the first three quarters of the year dropped by 28 percent compared to the same period in 2019, while the total value of residential transactions decreased by over 38 percent over that time.
The report said: “Despite the decline in transaction volumes, residential sales prices have remained relatively resilient. Pre-pandemic, we saw prices stabilise across many cities in Saudi Arabia and this trend appears to be continuing despite the economic headwinds that Saudi Arabia faces.”
In the first half of the year, Saudi’s GDP contracted by seven percent, while over the same period the oil and non-oil sectors contracted by 5.3 percent and 8.2 percent respectively.
In Q3 2020 Saudi Arabia’s PMI averaged a reading of 49.8, showing that the private non-oil economy continued to contract over the last quarter. The latest monthly reading of 50.7, the highest reading since February and an indication of expansion in economic activity, provides some cause for optimism, according to the report.
Taimur Khan, associate partner at Knight Frank Middle East, said: “Despite stringent lockdown measures and a weaker economic backdrop, Saudi Arabia’s real estate market has shown resilient performance in most parts.
“With economic activity beginning its gradual recovery to pre-pandemic levels, we expect that activity in the kingdom’s real estate market will follow suit. This will be further aided by the exemption of property from the recently hiked rate of VAT and the introduction of a lower property tax, which will be beneficial to end-users and developers and help the government achieves its aim of increased levels of homeownership and private participation in the real estate sector.”
According to a report from Jadwa Investment Company, around 1.2 million expatriate workers are expected to leave Saudi Arabia this year.
Saudi Arabia’s Ministry of Investment granted 506 foreign investor licences in H1 2020, compared to 586 a year earlier, attributed predominantly as a result of lower issuance levels in Q2 2020 which saw a decline of 47 percent year-on-year. Whilst April and May saw relatively anaemic levels of activity in terms of licence issuance, activity rebounded sharply in June which alone accounted for nearly half of the licences issued in Q2 2020.
Resident based retail spending in Saudi Arabia, meanwhile, is expected to decline by 10.9 percent off the back of stringent lockdown measures implemented in the second quarter, which caused all but essential retail activity to cease.
In terms of the hospitality sector, in September, Saudi Arabia’s Tourism Development Fund signed an agreement worth SAR160bn ($42.6bn) to help finance tourism projects in the kingdom. “This continued level of commitment and investment will be key in ensuring that tourism accounts for the targeted ten percent of GDP by 2030,” the report said.
In its latest World Economic Outlook, the International Monetary Fund (IMF) revised up Saudi Arabia’s GDP for 2020 from a 6.8 percent contraction to a 5.4 percent contraction. The IMF’s forecast GDP growth in 2021 remains unchanged at 3.1 percent.
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