Demand for lower- and middle-income housing remains strong in two of the major cities in Saudi Arabia despite the current slowdown in the market, according to a new report.
Research by tax and advisory services provider KPMG Al Fozan & Partners said that with a current supply of about 1.3 million residential units in the city, Riyadh is expected to receive an additional supply of 30,000 residential units in 2019.
“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 report said sale prices and rental rates of villas are expected to fall in 2019; a trend 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 command the highest rental rates in Riyadh.
The report added that apartment sale and rental rates remain under pressure due to economic slowdown and taxes such as the expat dependent levy. However, the popularity of apartments is increasing relative to previous years in the capital as a higher number of new developments are introducing apartments.
In Jeddah, the market is characterised with low home ownership rate that is 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, Jeddah is expected to receive an additional supply of around 20,000 residential units in 2019–20.
"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.
Sale prices and rental rates of villas continued to decline in 2018, due to cautious behaviour from investors and end-users. During 2018, the market witnessed a decline of 6-8 percent in sale prices, while the rental rates plunged with a relatively higher ratio.
The Jeddah apartments segment softened further and both rental rates and sale prices witnessing a decline of 8-10 per cent in 2018, the report noted.
"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," said Hassan.
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