The Saudi Arabian government’s decision to exempt property deals from 15 percent VAT and replace it with a new 5 percent tax on transactions will maintain momentum in the residential mortgage sector, according to real-estate services company JLL.

In its Q3 2020 performance report on the Saudi real-estate market, JLL outlined the government’s decision to also scrap the 5 percent tax for properties worth up to SAR 1 million ($267,000) for first-time homebuyers with the objective of increasing home ownership, a key target of the kingdom’s Vision 2030.

In Vision 2030, the government hopes to increase home ownership by 60 percent by 2020, and by 70 percent by 2030.

“In addition to the positivity injected by the recent government measures, the residential sector also showed strong construction activity in Q3 2020 with around 10,000 units handed over in Riyadh and Jeddah,” said Dana Salbak, head of research for JLL MENA.

“This brings the total residential supply to 1.3 million and 834,000 in Riyadh and Jeddah respectively.”

Salbak said residential rates are likely to remain under pressure due to macroeconomic factors such as increased unemployment rates and consequent contraction in household incomes.

There was also downward pressure in the office sector, although Riyadh, the kingdom’s commercial hub, performed the best, said JLL in a press release.

The third quarter of 2020 saw the highest number of office space deliveries in the year, bringing the total supply of office gross leasable area (GLA) to 4.4 million sqm, which will contribute to the pressure due to increased competition, JLL said.

The retail market, mall operators and owners continued to retain their tenants and maintain their quarterly average rental rates through incentives such as rent-free periods and temporary discounts, the report said.  

Under another Vision 2030 commitment - an agreement between the Tourism Development Fund and local banks to finance SAR 160 billion of tourism projects is expected to improve infrastructure in the kingdom’s tourism market, as well as increase the number of hotels rooms and construction activity in the hospitality sector, JLL said.

(Writing by Imogen Lillywhite; editing by Daniel Luiz)

(imogen.lillywhite@refinitiv.com)

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