Housing rents in Saudi Arabia maintained their climb and could remain high despite a royal decree ordering the construction of 500,000 new housing units in the next few years, a key Saudi bank said on Tuesday.
Prices of land and property remained high ahead of the enforcement of a landmark mortgage law, driven by a rapid growth in population in the world’s dominant oil power, Banque Saudi Fransi (BSF) said in a new survey.
BSF’s Real Estate Survey for the first half of 2011 showed the average advertised rate of high-demand smaller villas in the capital Riyadh has soared by almost a third in the past year, the most-pronounced price rises in the Gulf kingdom,” BSF said in a study sent to Emirates 24/7.
“Asking prices for villas in the Saudi capital Riyadh continued their upward climb in the first half of 2011, leading a general rise in property and land prices across the country as developers rush to fill a widening gap in supply.”
The survey showed rents for homes and offices steepened most in the Eastern Province close to the border with the UAE and other Gulf nations. Commercial land prices started escalating again in all Saudi districts and residential plots prices extended broad gains, particularly in Jeddah, North Riyadh and Khobar.
The April 2 to April 27 survey was conducted as Saudi authorities chart out a plan to implement a royal order announced in March to build 500,000 new homes without delay using SR250 billion in funds allocated by the government. “Our estimates show the Saudi housing market needs 1.65 million new units by 2015, or 275,000 new units per year, to meet demands of a population that has doubled in size since 1988 and continues to grow more than two per cent per year,” said John Sfakianakis, BSF’s chief economist.
“Saudi youth below the age of 30 years accounted for almost 60 per cent of the national population in 2009 and this group of potential new homebuyers is poised to keep the pressure on Saudi real estate prices.”
Aside from villas, the going rates for large apartments also gained moderately in the first half, particularly in north and east districts of Riyadh, according to the survey, which draws on real estate price data collected on six Saudi cities: Riyadh, Jeddah, Dammam, Khobar, Dhahran and Makkah.
The BSF Real Estate Survey is conducted twice a year to gauge trends in the kingdom’s real estate market. Property asking prices were collected from 37 real estate companies and agencies across Saudi Arabia.
Given the lack of reliable data on the Saudi property sector, these data should be taken as an indication of the direction and level of asking prices, understanding that great discrepancies exist even within neighbourhoods.
Respondents were further asked to give average advertised prices for empty residential and commercial plots of land per sq m (10.8 sq ft) by neighbourhood. BSF also gathered data on average office rents charged per sq m, rental rates
for apartments and villas, and building material prices.
“The mismatch between supply and demand, particularly for smaller villas, will be a key challenge for state and private sector investors to address in the coming
Years,” Sfakiankis said in the 20-page study.
“Saudi Arabia’s real estate market benefits from a consistent flow of indigenous demand that is poised to swell due to the young demographic. Focusing on affordability will be crucial. Since many Saudis earn less than SR8,000 a month, prevailing property prices are beyond their range of affordability.”
The study noted that the Saudi government has sought to tackle this drawback through state-held Real Estate Development Fund (REDF), which provides non-interest-bearing housing loans for Saudi citizens and currently accounts for about 81 per cent of total home financing.
The government injected SR40 billion into REDF this year in order to reduce the waiting period for loans and enable the body to offer maximum credit per
customer of SR500,000, up from SR300,000 previously.
Bank lending for home purchases has also picked up pace in the past two years. Outstanding fourth-quarter 2010 real estate loans among Saudi banks stood at SR23.1 billion, up almost 30 per cent from a year earlier.
New minimum wage requirements in the public sector, furthermore, could potentially expand the homebuyer pool by giving a lift to wages in other brackets, and possibly compelling the private sector to do the same, BSF said.
“The country’s long-awaited mortgage law should be implemented in the medium term, which would open the door for greater home ownership if accompanied with attractive interest rate and tenure terms by banks. The benefits ushered in by the law’s eventual passage are most likely to be felt over the longer term, however. In the meantime, many homebuyers remain in a quandary.”
According to the study, the SR1.28-million price tag for a small villa, the median country-wide price in the first half of 2011, is too high for most young people to entertain the thought of buying a detached home.
“We expect some younger families will modify their expectations, choosing instead to buy larger apartments. The size of families in urban areas is getting smaller so it ill be feasible for many young people to accommodate heir needs in apartments rather than villas,” it said.
“Paying an average SR518,958 for a large apartment will fall within the band of affordability for many more Saudi citizens, particularly as the wage equilibrium improves in the coming years….while property prices are poised to continue climbing in the short- to medium-term, the prospect of an onslaught of new units being added to the market is likely to lead many Saudis to put off plans to buy properties for a year or two in anticipation that prices would stabilize or fall.“
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