3 sectors in Saudi Arabia where investors can still make money
Recent macroeconomic forecasts for Saudi Arabia predict a flat growth for 2017. Going forward, the consensus is that the general economy will regain some momentum in 2018 (+2.5%) driven by non-oil sectors in light of the Government’s reform plans and initiatives to strengthen the non-oil economy and attract private sector investments.
Looking at the real estate market performance across Saudi Arabia, the general trend is that most sectors have remained subdued on the back of a slow economic environment with negative sentiment weighing on activity levels.
Generally, vacancies have been adversely impacted across most asset classes, along with a gradual softening of rents across the country.
Nevertheless, according to Raya Majdalani, Research Manager, Knight Frank, three sectors still offer attractive investment opportunities for investors.
(1) The hospitality sector
The hospitality sector is case in point with the supply composition in key cities such as Jeddah and Riyadh remaining heavily imbalanced in favour of five-star hotel developments, which indicates that there are significant opportunities for developers in the quality midscale segment over the coming years, notes Majdalani.
(2) Leisure activities
In addition, Majdalani says, leisure-related initiatives such as ‘Entertainment City’ will help to present the Kingdom as a more leisure-friendly destination and diversify the existing demand base.
(3) Real Estate Investment Trust (REIT)
Saudi Arabia has witnessed the creation and listing of REITs on the stock market following the approval of a regulatory framework in late 2016.
Early indications show that demand for exposure to the real estate sector via a REIT structure is growing with the listings of six REITs on the Tadawul to date, notes Majdalani.
“We have, so far, seen REITs in Saudi Arabia largely outperforming the Tadawul general market index, mainly driven by the amount of capital seeking exposure to the commercial real estate market, indicating investor appetite for the income-producing real estate as well as the potential depth of the market,” he adds.
As the market matures, he continues, the emergence of REITs is likely to assist in institutionalizing the real estate market in Saudi Arabia, providing a wider range of investors exposure to the commercial real estate market.
In turn, investors will be able to take advantage of diversification benefits, long-term stability and potentially appealing returns from regular dividend income, he concludes.