House prices in Saudi Arabia will stutter over the coming year as investors and lenders wait out the effects of economic uncertainty and new government reforms on the kingdom’s residential property market.
Analysts at the Jeddah asset management and investment firm Alkhabeer Capital said that in the near term rental demand would increase “as home buyers are likely to hold back purchases, amid economic uncertainty and expectations that the imposition of white land tax could increase land availability for residential construction and thereby lower prices”.
“Real estate prices are high due to inadequate urban planning and an artificial land shortage created by holding for speculative activity. Lenders are reluctant to provide home loans due to opacity on mortgage laws and amid expectations that land and building costs might ease moving ahead,” Alkhabeer said yesterday.
In April, the Saudi government launched an ambitious National Transformation Plan aimed at repairing the hole left in the country’s finances by the recent fall in oil prices. The plan includes boosting the country’s under supplied housing market.
Recent government measures include introducing the “white land” tax on undeveloped land, increasing the number of houses built and making it more affordable for Saudis to buy homes.
However, Alkhabeer said that it did not anticipate a “major downward shift in house prices” due to the country’s growing population and current lack of housing.
“We are positive on the undersupplied residential segment as demand from growing population is expected to keep residential rates supported,” Alkhabeer said.
“Although low affordability among potential home buyers is a concern, recent government initiatives to halve minimum down payment requirement is a positive development.”
Broker JLL’s data showed that villa prices in the Saudi capital Riyadh stood 5 per cent lower during the second quarter than they were during the same period a year ago, while apartment prices were 1 per cent lower.
In Jeddah, the kingdom’s second city, year-on-year villa prices were down by about 4 per cent and apartment prices fell by 5 per cent.
The number of housing transactions also fell by 5 per cent during the quarter, JLL said.