The housing shortage in Saudi Arabia has impacted the current situation in the market, despite the differing statistics on the proportion of households owning a dwelling, which range from 20% to 56%, they all indicate a significant shortage of housing units in all the major cities including Riyadh, Dammam and Jeddah.
Home prices have rebounded but the price of land plots allocated to residential and commercial projects have continued to decline, according to a survey by Banque Saudi Fransi, which was based on real estate prices in six cities in the kingdom; Riyadh, Jeddah, Dammam, Al Khobar, Dhahran, and Makkah. In contrast, rents stabilised in most districts of these cities, which is considered an important development as rising rents were the main reason for the record rates of inflation recorded by the kingdom over the past two years.
Demand is expected to grow for housing in Saudi Arabia – the largest economy in the Middle East – driven by the size of its population which is growing by 2% annually, and represents about 65% of the population of the Gulf region. The relatively large population of the Kingdom which stand at 25 million people, including 18.5 million citizens, represents the mainstay of stability and growth of domestic demand for real estate. The price of residential and commercial properties in the Kingdom fell slightly in 2009 due to the decline in demand during the global financial crisis, which impacted negatively on the real estate sectors across the world.
The main causes for this slight decrease in the prices of land and real estate in the Kingdom was due to citizens saving rather than investing, the scarcity of bank loans, low prices for building materials, and risk aversion policies. The rates of decline in the prices of real estate Saudi Arabia were the lowest in the Gulf region, and unlike other real estate sectors in the Gulf, the Saudi real estate sector has the advantage of primarily relying on domestic demand.
The rate of decline of villas and apartments prices stood at around 5% during the second half of 2009, with the eastern part of the capital Riyadh recording the highest rates of decline in property prices at more than 10%, but in the first half of this year, Riyadh saw the highest price increases thanks to the relative recovery of the overall Saudi economy and the growth of demand and the official intensified capital spending.
The overall average price of residential property in Jeddah fell during the first half of this year due to a 9% drop in real estate prices in the south of the city which has seen floods. While property prices fell in the areas most affected by the floods, other districts saw a rise, especially in north of the city, with varied housing prices in the eastern parts.
In comparison with the levels of the second half of 2009, the survey showed that the average price of ownership of large apartments with an area range between 135m-190m rose by 11.9% in the south of Riyadh to reach SR369,167, whereas it fell 9% in the south of Jeddah to reach SR455,000. The average price of ownership of large apartments in the neighbourhoods targeted by the survey rose by an average of 3.2% to reach SR464,167.
Saudis prefer large apartments and small villas, ranging between 300m and 400m despite the fact that most of them prefer to live in villas if they are able to afford to pay rent. In the neighbourhoods east and west, north and south of the capital, the average purchase price of large apartments rose by 6% to SR536,667 in the first half of this year, while the price of small apartments (120m-135m) climbed 6% to SR442,100, which indicate the return of apartment prices in Riyadh to 2008 levels.
The highest rise in the average property prices was recorded in the south of Riyadh, which has a low-income population, with the average price for large apartments rising 11.9% to SR369,167. The average price of owning apartments in all districts of Riyadh saw an increase, the lowest of these prices was recorded in its southern part, while the highest was recorded in the uptown suburbs to the north of the city averaging SR671,667.
The prices of small villas in the north of Riyadh rose by 12.3%, and in contrast large villa prices (400m-700m) in most neighbourhoods of Riyadh fell at a rate of 11.8% in the affluent suburbs to the north of the capital, with prices ranging between SR791,667 in the south and SR2.57m in the affluent suburb located in the north.
The average price of large apartments in Jeddah has dropped 4%, and the majority of the fall for these apartments took place during the months following the floods. The average price in Jeddah’s poor southern neighbourhoods declined by 9% to SR455,000. The average price of large apartments at the city centre fell by 4%, while in the north where the floods left only minor damage, the average price of large apartments rose 3% to reach SR738,333.
Prices for apartments and villas varied in the Eastern Province. In Dammam, the average price for large apartments rose 2.3% to SR296,667, but the average price for smaller apartments went down by more than 4%, while in Al Khobar, which has the highest prices in the province, the average price for large apartments rose 3.4% to SR351,667.
The current villas prices vary, despite the general decline in prices of large villas, which remained lower in Dammam and Dhahran than in Al Khobar, with the average price for large villas reaching SR858,300 and SR951,667, respectively. At the same time, the average price for small villas in Dammam fell 4.4%.
Prices of commercial plots in certain districts of Riyadh have rebounded, following a 12.2% price decline per square metre in plots between the 40 and 60 streets during the year that ended in the second half of 2009, highlighted by a 30% fall in some eastern neighbourhoods of the city.
But this trend has seen a significant shift this year, with prices rising in ten neighbourhoods, but the prices continued to decline in other parts of Riyadh, including the relatively cheap southern and western parts.
The impact of the slowdown on the growth of the private sector and the abundance of commercial real estate available for rent negatively affected the levels of rents in many parts of the Kingdom.
In the north of Riyadh, average office rents dropped 7.9% to SR504 per sqm, while average office rents in the east of Riyadh fell by 3.1% to SR349. The highest rates of decline in office rents were recorded in the Eastern Province, which remained constant in Dammam and Al Khobar and Dhahran last year until dropping by 14%, 30% and 23% respectively.
Prices in Riyadh, Makkah, Al Khobar and Dhahran saw a decline, while Jeddah and Dammam registered a slight rise, as that kind of land is the target for speculation by some Saudi investors, who tend to invest in real estate with the growing risks of investing in the stock market.
The survey results showed a decrease in rental housing after remaining unchanged throughout 2009. The survey shows that the average cost of renting large apartments dropped by around 3% in Riyadh, including the rents in the north of the city, and the median rent for apartments in Jeddah dropped 0.7%, while it remained high in the Eastern Province.
Real estate prices in the Kingdom saw a 20% rise in 2007 and 2008, driven by growing domestic demand and the availability of huge bank loans. The bank noted that it will issue a survey of the Saudi real estate market every six months to provide an indicator of market trends, which tend to grow at an accelerated pace.
Monday, May 10- 2010 @ 11:58 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.