Saudi rents set to keep rising in 2016 after shift away from sales

Knight Frank report also says it expects to see development of more affordable homes projects this year
Saudi rents set to keep rising in 2016 after shift away from sales
Jeddah city
By Staff writer
Tue 31 May 2016 02:04 PM

Major Saudi Arabian cities have seen a shift in demand from sales to rentals during 2015, with rents expected to keep rising this year, according to a new report from Knight Frank.

Its Saudi Arabia Residential Market Report also said a 2.5 percent white land tax and revisions to mortgage law are expected to revive demand in sales in the kingdom.

Knight Frank added that 2016 is expected to see a re-prioritisation of projects with an emphasis on affordable housing in Saudi Arabia.

The report said that on the drop in oil prices, the residential sector in Saudi Arabia continued its slowdown in 2016, with transaction volumes and sale prices declining at a slower rate. 

"Since the Arab Spring in 2011 various regulatory efforts at improving accessibility to real estate have been implemented. Whilst these efforts are a step in the right direction, the policies are only slowly filtering through," said Knight Frank.

It added: "Meanwhile, the reduction in government spending is likely to impact the financing of real estate projects. Delays and scaling back of many real estate and infrastructure projects will further exacerbate the shortage of housing across the kingdom.

The report said demand in Riyadh continues to be concentrated at the mid-to-lower end of the market, with this trend expected to continue into the future as Riyadh’s population is estimated to grow at 2 percent per annum over the next couple of years.

Concerns remain over the capacity of the development pipeline and the type of product that is being delivered to the market, it added.

Rental rates in Jeddah increased on the back of a shift in demand from sales to rental property. Consequently, average sale prices remained flat as the volume of residential transactions in Jeddah decreased by 8 percent compared to Q1 2015.

The report said Dammam and Khobar in the Eastern Province have seen significant population growth over the past couple of years, which has been met with limited residential supply.

Demand is expected to cool off as the fall in oil prices impacts the labour market, which is heavily dominated by expats.

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