Saudi Arabia's economy begins 'gradual recovery' - Knight Frank

Consultant says real estate transaction numbers are down 28% year on year, but residential sales prices remain resilient

Image used for illustrative purpose. In Saudi Arabia, Riyadh

Image used for illustrative purpose. In Saudi Arabia, Riyadh


Saudi Arabia’s economy is showing signs of a ‘gradual recovery’ despite strict lockdown measures that severely affected businesses, global property consultant Knight Frank said in a report. 

The kingdom’s Purchasing Manager’s Index (PMI) for September was up for the first time since February, indicating the beginning of a ‘gradual recovery’ in the economy. The International Monetary Fund (IMF) revised the kingdom’s GDP contraction for 2020 from 6.8 percent to 5.4 percent, Knight Frank said in its report, The Saudi Arabian Real Estate Market Review Q3 2020.

Taimur Khan, associate partner at Knight Frank Middle East said: “Despite stringent lockdown measures and a weaker economic backdrop, Saudi Arabia’s real estate market has shown resilient performance in most parts. With economic activity beginning its gradual recovery to pre-pandemic levels, we expect that activity in the kingdom’s real estate market will follow suit.” 

Transactions down in residential sector 

The report showed that the transaction volume in the residential sector decreased by 28 to Q3 2020 year-on-year, with the total value of transactions down 38 percent over the same period.

“Despite the decline in transaction volumes, residential sales prices have remained relatively resilient,” said the press release.

“Pre-pandemic, we saw prices stabilise across many cities in Saudi Arabia and this trend appears to be continuing despite the economic headwinds that Saudi Arabia faces.”

The property VAT exemption and the introduction of a lower property tax will help end-users, developers and the government achieve the country’s aims of increased levels of home-ownership and private participation in the real estate sector, said the press release, as well as the government decision to bear the tax burden for properties up to SAR 1 million ($267,000).

Short-term decline likely in office market

In the office segment, the consultant cited a rebound in activity in foreign investor licences seen by the kingdom’s Ministry of Investments. Licence issuances decreased year-on-year by 47 percent overall in the second quarter of 2020, but rebounded, with nearly half of all licences for that quarter issued in June.

However, Knight Frank said the economic recession and resultant retrenchment in employment levels as a result of the pandemic will affect demand for office space in the short term.

Some of this demand will be recovered as economic growth returns, but it is unlikely that all space that has been discarded will be reabsorbed, as firms are likely to adopt a varied range of post-COVID workplace models where not all space is still required.

“Concepts such as co-working may suffer the most as a result of behavioural changes, although the provision of space as a service may accelerate as the default form of demand as firms look to reduce capital expenditure expenses,” said the press release.

(Writing by Imogen Lillywhite; editing by Daniel Luiz)

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© ZAWYA 2020

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