Saudi real estate market faces another tough year

As reforms take time to kick in, the Saudi real estate market will face challenges this year amid slumping oil prices and a nationwide housing shortage, JLL said in its latest report.  

The sector will be impacted by lower capital outflow, which is seen to fall from its level of $11 billion in 2015. However, transactions among Middle East investors may increase as they look to reallocate some of their funds.

Cash flow and financing restraints will contribute to project delays within the kingdom, but will help stabilize the market by reducing risks of oversupply, the report added.

“Saudi Arabia faces a challenging macroeconomic situation and the government is currently taking proactive measures to readjust the economy to a new normal of lower oil prices and a stronger dollar,” said Craig Plumb, Head of Research at JLL Middle East and North Africa. “Various real estate stakeholders will need to take a pragmatic approach and work together towards realigning themselves and filling critical gaps in the market.”

The government’s proposed “white land tax” on unused plots is expected to curb further hikes in land value and stimulate property developments. The state could also use the additional revenue to address its shortage of affordable housing projects.

ESKAN project, which should add 500,000 affordable units, is still addressing these issues with the country’s housing ministry.

Meanwhile, rents have increased as housing has become increasingly unaffordable. A decrease in the down payment requirement from 30 percent to 15 percent, as well as the conversion of the Saudi Real Estate Development Fund (REDF) into a bank may “address some of the issues related to home financing in the Saudi market,” the report added.  

In January, Saudi housing minister Majid Al-Hugail said the kingdom needs about 1.8 million units to fix its affordable housing shortage over the next seven years.