By Staff writer
New JLL report also says residential transactions in Riyadh, Jeddah are down 5% in 2015
Less urgent real estate projects in Saudi Arabia are being delayed or scaled back as a result of lower oil prices putting the squeeze on government spending, according to a new report.
JLL, the real estate investment and advisory firm, said in its annual review of the Saudi Arabian Real Estate Market for 2015 that it has also seen shifting demand from property sales to rentals as residential transactions dropped by five percent last year.
It said that the Riyadh market maintained steady performance while Jeddah showed continued growth momentum despite lower oil prices and reduced government spending.
The report said lower oil prices have put pressure on economic growth, liquidity, government budgets, the stock market and asset prices.
It added that this scenario has led to cuts in subsidies and reduced government spending and has also impacted the financing of real estate projects.
JLL said a more selective approach can be seen, with an increased focus on critical infrastructure and affordable housing projects. There is also reduced spending on less urgent projects, resulting in delays or scaling back of many projects.
Jamil Ghaznawi, country head of JLL KSA, said: "We have witnessed a shifting demand in the residential market in both Riyadh and Jeddah, as the trend moves towards property rentals from sales.
"We expect rental demand to continue in 2016 but at a slower rate in comparison to 2015, while little or no change is likely in the sales market in 2016.
"However, this situation may change once the regulations surrounding the white land tax are released."
In Riyadh, approximately 17,000 units entered the market over 2015, the majority of which were standalone villas or small apartment buildings, said JLL.
It added that there are a number of large-scale projects including Green Oasis and the second phase of Manazil Qurdoba, which will deliver 930 and 700 residential units respectively. While 28,000 units could potentially be completed in Riyadh during 2016, actual deliveries are likely to be significantly less.
In Jeddah, about 20,000 new units were delivered in the past year, bringing the total residential supply to around 789,000 units as of Q4 2015.
Ghaznawi added: "We are entering a very challenging period as oil touches new lows and the government cuts spending and subsidies. It is encouraging to see that the government is taking steps to diversify the Saudi economy.
"Such structural initiatives will have long term benefits and will contribute towards the positive development of the Saudi real estate market."