Lack of regulations on hikes puts pressure on residential rents: Analysts

Riyadh city

The inflation rate in Saudi Arabia held steady at 1.5% in July, and the General Authority for Statistics (GASTAT) said that the 12% increase in residential apartment rents had a significant impact due to its weight in calculating the inflation rate.

Buraidah and Riyadh topped the cities, marking the highest increase in residential rents by 51% and 22%, respectively, latest data showed.

The lack of clear regulations on rent increases will continue to put upward pressure on inflation in residential property rents, analysts told Argaam.

Analysts expect that the lower cost of financing due to the expected decline in interest rates will lead to increased demand for ownership.

In addition, issuing a new system for foreign ownership may drive an increase in the supply of residential units allocated for rent, which, in turn, may contribute to reducing rents.

Regulating rent increase

Majed Al-Rukban, a specialist in regulatory leadership in the real estate sector, pointed out that the approval for the regulation of the landlord-tenant relationship, recommended recently by the Shura Council during discussion on the General Authority for Real Estate report, must be expedited.

The continuous rise in rents negatively affects savings and consumer spending of individuals, as well as the quality of life that citizens aspire to in light of the Vision 2030, Al-Rukban added.

He suggested forming an association to protect beneficiaries of real estate products and services, similar to the Consumer Protection Association.

Scarcity of supply

Mohammed Al-Hasami, a real estate specialist, noted that higher rents harmed many tenants.

“This rent inflation was preceded by an inflation in land and housing prices. Therefore, the main factor behind higher rents is the scarcity of real estate supply,” Al-Hasami said.

Many real estate developers, over the past two years, sought to reduce supply due to the rise in interest rates. Thus, consumers stopped obtaining home loans, anticipating a decline in interest, leading to a rise in rents.

Al-Hasami expects the hikes to diminish as factors behind the their rise disappear.

Increase in financing costs

Emad AlDulaijan, a real estate expert and appraiser, said that there is a noticeable increase in residential rents. Higher interest and financing costs has led to an increase in demand for residential rentals.

Emad AlDulaijan, real estate expert and appraiser

"This increase varies from one area to another depending on the location, the ease of entrances and exits to the area, and the services available," AlDulaijan added.

AlDulaijan expects an increase in demand for ownership with the decrease in financing costs, projecting that the new foreign ownership system will lead to an increase in the supply of residential units for rent, and thus reduce rents.