Mid-income housing 'in big demand in Riyadh, Jeddah'

Demand for lower- and middle-income housing remains strong in two of the major cities in Saudi Arabia - capital Riyadh and Jeddah - 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 the kingdom.

On Riyadh, the KPMG report said even as the current supply stands at about 1.3 million residential units in the city, the city is likely to receive an additional supply of 30,000 residential units this year, 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 centre is becoming saturated with various developments, as vacant land parcels become scarce," remarked Firas Hassan, the head of real estate at KPMG Al Fozan and partners.

On the villa sector, Hassan said the sale prices and rental rates of villas are expected to fall later this year; a trend that 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 SR4,000 and SR6,500 ($1066 and $1733) per sq m while the northern side was in the range of SR2,300 to SR5,500 per sq m.

Sale and rental rates remain under pressure due to economic slowdown and taxes such as the expat dependent levy, stated the report.

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 SR3,000 to SR4,700 per sq m, it added.

On the Jeddah residential market, KPMG said 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 810,000 residential units, the Saudi city is expected to receive an additional supply of around 20,000 residential units in 2019–20, thus registering a 2.5 per cent increase 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," noted Hassan.

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, saiod the KPMG report.

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 SR5,000 to SR8,000 per sq m, it stated.

On the apartment segment, Hassan said the Jeddah market had softened further and both rental rates and sale prices had witnessed 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 SR5,000 and SR6,500 per sq m, he noted.

"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," stated 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 added.-TradeArabia News Service