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Sun 17 Nov 2019 02:37 PM

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Expat exodus taking its toll on Saudi real estate market, says S&P report

Non-Saudi workforce has declined by about 1.9 million since 2017

Expat exodus taking its toll on Saudi real estate market, says S&P report

Government incentives for the private sector will gradually strengthen domestic demand, according to S&P Global Ratings credit analyst Sapna Jagtiani.

An exodus of expat workers is expected to keep the pressure on residential rents and sales prices in Saudi Arabia, according to the latest report from S&P Global Ratings.

JLL’s third quarter 2019 report revealed sales prices have declined 5 – 6 percent year-on-year and rentals by 1 percent.

And while supply is slated to increase slowly and there is demand for affordable units, S&P Global Ratings report, “the overall market is suffering from declining prices”.

S&P has linked this to the exit of foreign workers – official labour force statistics show the non-Saudi workforce has declined by about 1.9 million since 2017.

"The general market trend is of weakening prices and rents across various real estate segments and we consider the sector to be sensitive to unexpected changes in economic growth. However we expect government incentives for the private sector will gradually strengthen domestic demand, while large government projects will also add to growth," said S&P Global Ratings credit analyst Sapna Jagtiani.

Home ownership

According to the Saudi Housing Vision Realisation Programme, the home ownership rate among Saudi nationals was 50 percent in 2016 and the government aims to increase it to 60 percent by 2020 and 70 percent by 2030.

S&P Global Ratings expects Saudi real GDP to contract by about 0.4 percent this year, driven mainly by a fall in oil production tied to the OPEC deal and the foreign attacks on two oil production facilities.

Overall, Saudi Arabia's hydrocarbon production quotas, subdued global oil and gas prices, and an escalation in regional geopolitical tensions have impeded growth.

Low confidence has also affected key growth sectors, such as real estate. But, the kingdom is implementing a series of reforms that include social measures aimed at increasing labour participation, particularly of women; improving education levels; and boosting the private sector's role in the economy.

"The key difference between Saudi Arabia and neighbouring countries is the sheer size of the local population and favourable demographics.

"We believe Saudi Arabia has the opportunity to better manage property supply than its neighbours. The country can also proactively plan for new concepts that are disrupting traditional brick-and-mortar real estate elsewhere such as co-working spaces, co-living developments, and online shopping," Jagtiani added.

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