Saudi Arabia

JLL forecasts testing year for Saudi property

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JLL said today that a challenging macroeconomic environment will continue to affect Saudi Arabia’s real estate market.
It said seven factors will drive property in 2016.
  • White Land Tax. JLL said this will reduce pressure for further increase in land values, and ultimately increase real estate development activity. The government could allocate the additional revenue towards the development of affordable housing in peripheral locations. Once it takes effect, developers and land owners will start considering different partnering options in order to develop their land holdings. The law will also stimulate further development to address the shortage of middle-income housing.
  • Reform of Home Financing. There is a pressure to revise the down payment requirement from 30 per cent to 15 per cent as housing is becoming increasingly unaffordable for a majority of the population. Change in the mortgage law will also give impetus to the market.
  • Reduced spending on transport infrastructure. With the restructuring of government spending, there will be greater focus on urgent infrastructure projects and other national priorities. As a result, the market is expected to witness reduced spending on transport infrastructure as no new projects are expected to be announced and there could be possible spending cuts on existing projects.
  • Project delays. Project delays will eventually reduce risk of oversupply.
  • More action on affordable housing. The Saudi government is taking steps to address the shortage of affordable housing. The Ministry of Housing‘s Eskan project should add 500,000 units to the total stock of affordable housing.
  • Challenging hotel landscape. The market will be affected by tightening market conditions and further consolidation among hotel operators. Religious tourism will remain a key demand driver and will get a further boost if the number of foreign pilgrims increases.
  • Lower capital outflow. In 2015, Middle East investors purchased more than $11bn of overseas real estate assets. This capital outflow is expected to decline in 2016, but will still remain significant as Middle East private investors will continue to diversify their assets.