JEDDAH — Saudi Arabia’s residential sector outlook remains positive, Alkhabeer Capital said in its inaugural Global Real Estate Report released Sunday.
It noted that the Kingdom’s housing market is expected to remain undersupplied, with an annual requirement of 100,000–200,000 residential units per year, as estimated by the Ministry of Housing.
A growing population is also expected to fuel demand, it added. Though low affordability among potential homebuyers is a concern, recent government initiatives to reduce minimum down payment requirement is a positive development.
In the near term, Alkhabeer expects rental demand to increase as homebuyers are likely to hold back purchases amid regional economic uncertainty and price barriers, similar to the residential market in the US. There are expectations that the new White Land Tax could increase land availability for residential construction and thereby lower prices over the longer term.
Alkhabeer does not anticipate a major downward shift in house prices, as the supply constraint and underlying demand growth would continue to support prices.
On the commercial front, rental prices in Riyadh have broadly remained stable, though the specter of low oil prices casts a long shadow, and Alkhabeer is not positive about short-term potential. The office market scenario will alter considerably this year, as nearly a half-million square meters of new office space will be added across two construction projects, the King Abdullah Financial District (KAFD) and the Information Technology Communications Complex (ITCC), exerting significant pressure on rentals.
While a number of ongoing construction projects in Jeddah are due for handover this year, adding of 33,000 square meters to the city’s office segment is less vulnerable, due to lower vacancy rates compared to Riyadh.
Alkhabeer also maintains a positive outlook on the Kingdom’s hospitality sector, which is largely driven by religious tourists. Arrivals are expected to surge, as the government eases restrictions on visa approval amid completion of long awaited expansion projects in Makkah. Furthermore, the General Authority of Civil Aviation’s initiatives to increase the capacity of Saudi Arabia’s airports to more than 100 million travelers by 2020 will provide further incentive to boost tourist inflows and, while the hotel supply in Makkah and Madinah is expected to increase, rising demand will meet the expanded supply.
Globally, real estate investments are eclipsing the pre-financial crisis levels of $758 billion, with prospects across all property classes. Regionally, the Americas have recorded the highest levels of activity in the years following the crisis, with investment in the region surging to new highs last year. The US economy in particular, the report highlights, has emerged as a significant bright spot across developed markets. Compared to its G7 peers, the US is projected to be the fastest growing economy over the next year, with sustained activity across the real estate sector buoyed by a healthy residential market and continued job growth.
The perception of the US as a safe haven has resulted in increased capital flows into the country’s real estate market, and recent regulatory changes in the US are also expected to drive further investment into the country.
The tax burden imposed on international investors is now likely to be substantially lighter, as the federal government introduced changes to the Foreign Investment in Real Property Tax Act (FIRPTA) late last year.
