By Edward Attwood
Data from investment outfit Derayah shows much higher property prices possible
The rise in Saudi real estate values is on track to continue, research carried out by Saudi-based trading platform Derayah has found.
Derayah, the first Middle East company to launch a unified online trading platform, has developed a metric to research the affordability of property, benchmarking key Saudi cities with others across the world.
Instead of using rental yields to evaluate residential prices, Derayah uses the area afforded by the average income of inhabitants (AAI) metric, to compare the average price per square metre in each city to the average income of the population of that city, after adjusting for tourist inflows.
In research published in November, Derayah argued that the new method showed that major Saudi cities were amongst the most affordable in the world.
In an interview with Arabian Business, CEO Mohammed El Kuwaiz added that current real estate prices in the kingdom were “not that high” compared with the ability of the population to pay.
When questioned as to whether his analysis could result in much higher prices for Saudi property, El Kuwaiz said: “I’d like to stress that that is true, but using this metric.”
“Obviously there are lots of other things that need to be taken into consideration when combining a view, but if I looked at this metric, I would deduce that real estate prices in Saudi Arabia are not that high if you compare them with the ability to pay in Saudi.
“A lot of the debate has happened because people have only looked at recent history. If prices have gone up by 20-30 percent, people are assuming that means they are expensive. The other way of looking at it is that prices have actually historically been very low, and they’ve been low because demand for residential properties has been very low due to unavailability of financing and mortgages,” he added.
Al Kuwaiz said that this method also showed that other Middle Eastern cities also ranked as being relatively affordable.
“You’ll find that most - if not all - GCC real estate markets are in the bottom half of the list, making them the most attractive in terms of affordability. Dubai didn’t used to be, but now of course it is, given the lower prices there now,” he added.
The November research showed Zurich to be the most affordable city in the world, using the new metric, closely followed by Cairo, Copenhagen and the Saudi cities.
That means that the average annual income of the inhabitants of the Saudi cities is enough to buy eight square metres of residential property.
The most expensive city was Mumbai, followed by Hong Kong, London and Singapore. Residents in Mumbai can only afford to buy 0.36 square metres of property with their annual incomes.
It is very sad when you see reports like this, that are totally removed from reality. Sadly, the fact of the matter is that very few Saudis can afford to buy property in their own country.
Your average Saudi does not care if things are not affordable in other countries.