Demand for lower- and middle-income housing remains strong in two of the major cities in Saudi Arabia, despite current slowdown in the market and subdued performance over the last few years, reveals the latest real estate report by KPMG Al Fozan & Partners, a leading audit, tax and advisory services provider in Saudi Arabia.
Riyadh Residential Market
With a current supply of about 1.3 million residential units in the city, Riyadh is expected to receive an additional supply of 30,000 residential units in 2019, comprising a 2.3 per cent increase over and above the current stock.
“The majority of the new supply is focused towards the north and the east of the city while the center is becoming saturated with various developments, as vacant land parcels become scarce,” commented Firas Hassan, Head of real estate at KPMG AL Fozan and partners.
Villa prices
Sale prices and rental rates of villas are expected to fall in 2019; a trend started following the implementation of the white land tax. The northern and central areas of the city such as Al Ghadeer, Al Nada, Al Malga, and Al Wurud districts command the highest rental rates in Riyadh. Sale prices of new villas in the central part of Riyadh range between SAR 4,000 and SAR 6,500 per square metres (sqm) while the northern side was in the range of SAR 2,300 to SAR 5,500 per sqm.
Apartments prices
Sale and rental rates remain under pressure due to economic slowdown and taxes such as the expat dependent levy. However, the popularity of apartments is increasing relative to previous years in the capital as a higher number of new developments are introducing apartments. New developments in central areas are still fetching the highest sale price ranging from SAR 3,000 to SAR 4,700 per sqm.
Jeddah Residential Market
The market is characterized with low home ownership rate that is hampered by affordability constraints, and shortage in supply of residential units targeting lower and middle-income segment.
With a current supply of about 810 thousand residential units, Jeddah is expected to receive an additional supply of around 20,000 residential units in 2019–20, witnessing an increase of 2.5 per cent to the current stock.
"The market is witnessing a shift in the trend as a proportion of the middle-income housing units are significantly increasing in the forthcoming supply. Majority of these developments are located towards the northern side of the city," said Firas Hassan.
Villas
In line with the previous years, the sale prices and rental rates of villas continued to decline in 2018, due to cautious behavior from investors and end-users. During 2018, the market witnessed a decline of 6 to 8 per cent in sale prices, while the rental rates plunged with a relatively higher ratio. This current market condition will prevail in the short to medium term. The western side of the city commands the highest sale prices and rental rates, with prices ranging from SAR 5,000 to SAR 8,000 per sqm.
Apartments
Jeddah apartment segment has softened further and both rental rates and sale prices witnessing a decline of 8 to 10 per cent in 2018. The most expensive apartments for sale are located toward the western side, with prices between SAR 5,000 and SAR 6,500 per sqm.
"Despite the current slowdown in the market and subdued performance during the last couple of years, the market drivers seem to be positive for the long term, backed by the favorable demographic, and government’s focus on the real estate sector as part of the diversification process," said Firas Hassan.
While the demand for apartments and small-sized villas/duplexes is expected to remain high, residential community concept (semi-gated complexes) is getting market acceptance, he concluded.
