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Sat 24 Jan 2015 09:52 AM

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New mortgage rules slow Riyadh real estate growth in Q4

Jones Lang LaSalle says sales price and rents growth subdued in Q4 after regulations requiring 30% deposit on all home financing deals

New mortgage rules slow Riyadh real estate growth in Q4
Cranes stand beside new high rise buildings under construction in the King Abdullah financial district of Riyadh, Saudi Arabia, on Monday, April 9, 2012. Saudi Arabias gross domestic product expanded 6.64 percent in the fourth quarter from a year ago, the kingdoms statistics agency said. (Bloomberg)

Growth in Riyadh's residential real estate market has been restricted by new mortgage regulations requiring a 30 percent down payment on all home financing, Jones Lang LaSalle has said in a new report.

JLL's Q4 2014 Riyadh Real Estate Overview report said that while property values in Riyadh have increased over the past year, the last quarter saw more subdued growth.

This slowdown in both apartment and villa sale prices and rents can be largely attributed to the new mortgage regulations restricting loan-to-value ratios to a maximum of 70 percent.

"This is expected to impact the middle income segment of the population, as new buyers rely heavily on financing and are unable to afford the required 30 percent down payment. 2015 may therefore see subdued price growth in the residential market," the report said.

It added that vacancies in Riyadh's office market aare expected to come under pressure this year due to further supply coming online.

The total office supply in Riyadh reached 2.3 million sq m by the end of 2014, an increase of 9.5 percent on the year-earlier period. JLL said 2015 is expected to witness the delivery of an additional 500,000 sq m of office space.

"Vacancy rates across the city remain relatively low at 16 percent and 10 percent in the central business district, but are expected to increase as further supply enters the market," the report said.

The retail segment saw no new completions over the last quarter, with rents slightly increased in regional and community shopping centres during Q4 while super regional malls saw no increase.

Vacancy levels in major malls have slightly decreased during this quarter, JLL said.

No new hotels were delivered into the market during the last quarter of 2014, keeping the total stock at 13,390 keys.

Occupancy rates registered annual increases to reach 60 percent and are expected to remain stable over the next 12 months, the report said, adding that average daily rates have fallen by 6 percent compared to the same period in 2013.

"The completion of 2,820 room keys in 2015 is expected to increase competition and consequently place further downward pressure on average daily rates," the report noted.

Jamil Ghaznawi, national director and country head of JLL in Saudi Arabia, said: "In the last quarter of 2014, we have witnessed the introduction of new mortgage regulations requiring a 30 percent down payment on all home financings, this has restricted growth levels in the residential market. While in the office sector, new supply has constrained performance and increased vacancies."

He added: "The Saudi real estate market is heavily dependent upon high levels of government spending and while the more prudent approach is unlikely to have an immediate impact on the market in 2015, it certainly marks the end of a period of rapid increase in spending, which could constrain the growth of the real estate market in the longer term."

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