Reforms, rising population to spur growth in Saudi residential market: Knight Frank

Saudi Arabia's residential property market is stabilising with demand set to pick up in 2018 after two years of decline, according to Knight Frank.

“Longer term, demographic factors will continue acting as demand generators for the residential market in Saudi Arabia. This includes a large population which has seen a sustained growth rate over the past decades and a long-term trend towards smaller size households,” the UK-based real estate consultancy said in its latest report.

On a macro level, the economy is expected to gradually adapt to the new norm in oil prices as it diversifies away from its dependence on the hydrocarbon sector in line with economic reform programs.

"Therefore, GDP growth should regain some momentum in the medium term mainly driven by non-oil GDP, which should provide support to the recovery in the residential market,” the report added.

The government's initiatives in support of the sector include the 2.5 percent white land tax on undeveloped land plots, new regulations for the use and listing of REITs, an increase in the loan-to-value ratio for first home ownership, and the launch of the Sakani programme for affordable housing.

Meanwhile, the Kingdom's residential market continued to decelerate last year with lower levels of transactions and flattening sales prices.

“The trend towards a weaker residential market is mainly due to eroding market liquidity and is exacerbated by a combination of more inherent factors, namely lack of affordability and limited access to financing, supply shortage in the mid-to-lower end of the market and lack of suitability of existing stock,” said Raya Majdalani, research manager, Knight Frank.

In Riyadh, the volume of residential transactions rose by 15 percent, but their value declined by three percent on average. In Jeddah, transaction volume remained flat, but value fell 21 percent, while in Eastern Province transactions were down by two percent, as value fell by nine percent.

“Demand for residential property is expected to be underpinned by a growing population, the lack of existing good quality stock and a long-term trend toward smaller average household size. These factors should inevitably fuel the demand for residential units in Riyadh,” the report added.