Residential rent on the decline in Saudi: Where’s the good news?
According to a report released in April by the Saudi Arabian Ministry of Housing, residential rent prices have dropped in many cities in Saudi Arabia.
Good news, but for the wrong reasons.
Saudi more affordable to live in?
According to the report, residential rents, excluding utilities and other housing costs, dropped by 7.9% in Jeddah, Saudi’s commercial and business hub, by 3.8% in Mecca and by 0.6% in the kingdom’s capital Riyadh, Zawya reports.
However, some cities saw an increase in rental prices. Rents went up by 1.7% in Medina and by 17.9% in Dammam.
Real estate developer and financial consultant Omar Al-Salami said the drop in rent price will continue until the end of the year, the Saudi Gazette reports.
He pointed out that the real estate sector is going through an important phase that led to lower rents of housing units. This is a transformational stage for citizens as they become owners and no longer pay rent through government support provided by the Ministry of Housing, in addition to banks that provide housing products suitable for all social classes in order to provide suitable housing.
Saudization to blame?
In an effort to diversify their economy, while simultaneously improving the country’s %12.9 unemployment rate (for Q1 2018), the Kingdom has been taking active steps in recent years to cut down on the expat population.
Last year, expatriates working in the private sector began paying a family tax of $26.6 (SR 100) per month for every minor or unemployed relative living in the Kingdom, the Saudi general directorate of passports said in a statement. The tax is expected to increase every year until 2020, when it will max out at $1280 (SR 4,800) per dependent annually. Currently, the monthly tax is $53.3 (SR 200) per dependent.
Currently, companies employing more foreign nationals than Saudi nationals have to pay a monthly fee of $160 (SAR 600) per foreign national employee – $133 (SAR 500) for companies employing more Saudi nationals – PwC reports.
These drastic measures have brought upon what the Financial Times dubs as the country’s “biggest ever outflow of expatriate workers.” According to government data, more than 667,000 foreigners have left the country since the beginning of 2017 due to these new taxes. Some have left willingly, while others have been laid off by companies unable to afford the rising taxes they were incurring as a result of hiring a predominantly expat workforce.
With such a high outflow of expats, it is only natural for houses in the market to see a price drop, as demand falls significantly.
It is troubling then to hear that many of these jobs that have been vacated are still unoccupied, as nationals pass them up for better-paying public sector jobs. The country’s 12.9% unemployment rate is in fact the country’s highest in history, according to analysts.
The lifting of the ban on women driving will hopefully improve this troubling figure, as entirely new job markets open to women, such as those in the ride-hailing sector.
Crown Prince Mohammed bin Salman’s plan to reduce unemployment to 9% by 2020 is looking more difficult to attain than ever.