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Sat 15 Oct 2011 12:23 PM

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Saudi house prices seen rising up to 5% to 2013

Investment bank Rasmala says it is 'cautiously optimistic' on real estate outlook

Saudi house prices seen rising up to 5% to 2013

House prices in Saudi Arabia are likely to increase by up to five percent over the next two years, according to a new report by Rasmala.

The investment bank said it was "cautiously optimistic" on the kingdom's real estate market due to an uncertain global economy and inherent structural challenges facing the Saudi economy.

"We expect house prices to appreciate between 0-5 percent annually in the next two years," Rasmala said.

"We believe the Saudi real estate sector will experience sustained demand pressures, partially offset by affordability, financing, youth unemployment challenges and global macro uncertainty," it added in a report.

Saudi Arabia's real estate sector is the largest among the countries of the Gulf Cooperation Council (GCC), with about 4.6m residential units and pent-up demand for 0.4m units as of end-2009.

Although the industry view is positive on house prices in urban property markets such as Riyadh, Jeddah, Makkah, Madinah and the Eastern Province, Rasmala said it expected "structural challenges to hamper robust property growth in the next 12 months".

"We expect the government and the private sector to systematically provide an appropriate regulatory and financing framework to bridge the demand-supply gap while controlling potential speculative growth, although we believe this may take several years," the report added.

Saudi Arabia's real estate market has emerged relatively unscathed from the effects of the global economic slowdown which saw house prices in other parts of the GCC, particularly Dubai, nosedive.

Rasmala added: "We believe investors will find relatively promising risk-reward in property stocks exhibiting low gearing and cash flow risk coupled with higher value generation from recurring revenues."

In June, the head of Dubai-based developer Emaar's Middle East unit said Saudi Arabia will miss its goals for infrastructure and affordable housing unless it streamlines rules that are delaying projects.

“Infrastructure and real-estate projects in Saudi Arabia are typically very slow due to regulations that are very time- consuming,” Emaar Middle East chairman Ahmed Al Kulli said.

Saudi King Abdullah has pledged to spend more than $82bn on housing development to help meet the needs of a growing population.

The government is building four new metropolitan areas as part of a $400bn plan to invest in infrastructure and make the country less dependent on oil.