By Staff writer
Volume of villa and apartment transactions slump by around 70% and 33% respectively in Q1, says JLL
Property transactions in Riyadh have slumped by more than 50 percent since new mortgage regulations were introduced in November, according to a new report by JLL.
Its Q1 2015 Riyadh Real Estate Overview report showed that the volume of villa and apartment transactions recorded by the Ministry of Justice decreased around 70 percent and 33 percent respectively.
The regulations limit mortgages to a maximum of 70 percent of the sale price and have resulted in a marginal decline of two percent in the average sale prices for villas and a shift to the rental market.
Rentals in the first quarter of 2015 continued to grow at between 10-15 percent year as a result, JLL said.
The restrictions aim to prevent a bubble forming in residential real estate of the kind seen in Dubai several years ago. Authorities want to encourage home ownership and prevent ordinary Saudis from being priced out of the housing market.
But the market's initial reaction to the restrictions shows how difficult it can be to adjust supply and demand in line with social objectives in Saudi Arabia, which faces a shortage of available land and a rapidly growing population.
JLL's report also said that the first quarter of 2015 saw the completion of around 5,000 housing units, bringing the total stock to around 976,000 units.
The Riyadh office market witnessed no major completions in the first quarter of 2015 and city wide vacancy rates have remained stable at 16 percent, while Central Business District (CBD) vacancies dropped by to 8 percent, the report said.
Average rents have remained stable since the last quarter for Grade A and B office buildings at SR1,275 and SR870 per sq m respectively.
Jamil Ghaznawi, national director and country head of JLL's Saudi Arabia, said: "Recent changes to the mortgage regulations have resulted in a shift in demand away from residential sales to rentals.
"Continued delays in the delivery of major projects have stabilised performance in the office market. The delivery of some of the buildings within the King Abdullah Financial District (KAFD) has been further delayed to 2016, and the Information Technology and Communication Complex (ITCC) is expected to be completed later this year.
"JLL expects that office rentals will remain unchanged until this additional space enters the market in late 2015 and early 2016 and leads to a softening of the market."