Housing rents in Saudi Arabia soared by around 9.5 per cent in 2010 to push up overall inflation in the world’s dominant oil power to nearly 5.3 per cent through the year, according to official figures.
The surge in rents was the main factor in the rising inflation from around five per cent in 2009 as most other components of the consumer price index (CPI) recorded slight increases while clothing and footwear edged down, showed the figures by the Saudi Arabian Monetary Agency (SAMA).
The surge in rents extended years of a steady rise in housing costs in the largest Arab economy mainly because of supply bottlenecks and a rapid growth in the population, which was put at 27.1 million in mid 2010.
CPI figures showed last year’s inflation in rents, maintenance and water, a key component of the CPI, was sharply below the 14.1 per cent increase recorded in 2009 and the 17.5 per cent in 2008, one of its highest levels.
In contrast, fabrics, clothing and footwear prices slipped 0.7 per cent in 2010 while food and beverage rose by 6.3 per cent, the second highest after rents.
Home furniture grew by 2.8 per cent while inflation stood at only around 0.4 per cent in medical care, 1.1 per cent in transport and communication and 0.8 per cent in education and entertainment. It stood at 7.2 per cent in other goods and services, according to SAMA, the country’s central bank.
High rents and food prices allied with strong domestic demand and weakening US dollar, to which the Saudi riyal is pegged, to push up inflation in the Gulf Kingdom to a record annual high level of 9.9 per cent in 2008. Other Gulf oil exporters also reeled under festering inflation, including the UAE and Qatar, where the rate climbed to an all time high of 12.3 and 15 per cent.
In a study last month, a Saudi investment firm said it expected a massive public financial initiative announced by King Abdullah over the past few weeks to stoke inflation in the short term due to a projected rise in spending although the initiative envisages the construction of 500,000 houses for citizens.
“Over the short-term we think that inflation will be slightly higher than we had previously anticipated owing to much greater consumer spending, but over the medium term the increased provision of housing will reduce inflationary pressures markedly,” the Riyadh-based Jadwa said.
“The additional two month’s salary given to public sector employees will trigger similar awards to the private sector and combined will cause a significant increase in spending in 2011.”
Besides houses and a two-month salary, unemployed Saudis will get SR2,000 a month for one year as part of two royal handouts, which involve the spending of nearly SR500 billion ($135 billion) over the next few years.
In another study, Banque Saudi Fransi (BSF) said Saudi Arabia needs to construct nearly 1.65 million houses for its citizens over the next six years to bridge a wide gap between demand and supply.
Despite a rise in housing units over the past year, Saudi Arabia’s housing market continues to wrestle with a supply shortage and mounting demand which has placed home ownership affordability out of reach for many young Saudis, it said.
“We estimate that private and public developers in Saudi Arabia will need to build nearly 275,000 housing units a year through 2015, for a total of 1.65 million homes over six years, to cater to demands of a population that has doubled in size since 1988 and grows more than 2% annually.”