Saudi Arabia: Property Prices and Rents May Continue Weak Trend

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CORONAVIRUS IMPACT

  • Expats exiting the kingdom following the imposition of expat and dependent taxes; and the white land tax, are exerting downward pressure on sale prices and rents.
  • Rental rates within the retail sector declined during 2018 on the back of lower consumer spending as a result of the introduction of VAT.
  • Riyadh continues to be the preferred destination for businesses, accommodating the highest share of the country’s total workforce at 38%.

Cavendish Maxwell, a leading property consultancy and chartered surveying firm in the Middle East, released its first Saudi Arabia Property Market Report for 2019 comprising key property data and trends for the country’s real estate industry. The industry report was compiled by the firm’s in-house strategic consulting and research team, and covers key data and overviews into the residential, retail, office, industrial, hospitality and entertainment sectors.

Commenting on the report, Aditi Hariharan, Associate Partner, Strategic Consulting and Research at Cavendish Maxwell, said:

“A mix of regional and global headwinds and oil price fluctuations have exerted downward pressure on property prices across segments in Saudi Arabia, with the trend likely to continue over the coming months. However, the kingdom continues to power through with the initiatives charted out in the Vision 2030 plan, increasingly making progress towards its goals to diversify the economy and attract investments. As more reforms are implemented and private sector activity grows, the positive effects will spread across sectors, including real estate.”

Key market insights

Saudi Arabia’s GDP (at constant prices) grew from SAR 1,981 billion in 2010 to SAR 2,938 billion in 2018, registering a Compound Annual Growth Rate (CAGR) of 5%. After shrinking to 0.7% in 2017, Saudi Arabia’s economy returned to a path of growth in 2018, growing at a pace of 2.2% helped by an improved oil sector as non-oil revenues increased.

The residential market in Saudi Arabia has been on a decline in recent months. An increasing number of expats exiting the kingdom following the imposition of expat and dependent taxes; and the white land tax, introduced to ensure that plots are developed and not left idle, are together exerting downward pressure on sale prices and rents. However, in line with the Vision 2030, the government aims to double real estate’s contribution to the country’s GDP to 10% by 2020, from 5% in 2016 and is undertaking a slew of measures to achieve this.

Rental rates within the retail sector declined during 2018 on the back of lower consumer spending as a result of the introduction of VAT. The trend is expected to continue over the rest of 2019 as new retail space is added to the market. Over the longer term, the outlook for the physical and online retail sector in the kingdom remains positive owing to rapid digitalisation, favourable demographics and supportive initiatives by the government.

The capital city of Riyadh continues to be the preferred destination for businesses, accommodating the highest share of the country’s total workforce at 38%. In the long term, supply of office space catering to large-scale companies and SMEs is expected to increase as the government encourages private industries to ramp up operations in the kingdom.

The introduction of luxury properties, entertainment venues and business destinations is set to attract a huge influx of domestic and international visitors. According to data from STR, Saudi Arabia has over 64,000 rooms across various phases of the hotel development pipeline, representing 76% of the over 84,500 existing hotel rooms in the kingdom.

Giga-projects have been conceptualised by the Public Investment Fund (PIF) of Saudi Arabia to offer visitors unprecedented facilities in various pockets of the kingdom. Some of the initial projects announced include The Red Sea Project – an island and inland complex which will be renowned for its ecological value; entertainment-city Qiddiya, which will house a Six Flags-branded theme park, and “uber-luxury” wellness tourism destination, Amaala.

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