Riyadh-Mubasher: JLL, the world's leading real estate investment and advisory firm, has JLL outlined seven key trends that will impact Saudi Arabia’s real estate market this year.
The first factor is the impact of white land tax as multi-faceted benefits are expected after the implementation of this new tax. It will reduce pressure for further increase in land values, and ultimately increase real estate development activity, the company said.
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 severe shortage of middle income housing across the Kingdom.
The second factor is the reform of home financing, which will be reflected positively on the market.
There is a pressure to revise the down payment requirement to 15% from 30% as housing is becoming increasingly unaffordable for a majority of the population.
The third factor is 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.
The fourth factor is that project delays reduce risk of oversupply, which will eventually reduce risk of oversupply. This will represent something of a ‘blessing in disguise’ and will help stabilise the market with favourable demand-supply dynamics.
Project delays will be attributed to a number of reasons, including low materialisation rate, financing constraints, cash flow problems, contractual disputes, labour shortages and developers holding back projects.
The fifth factor is more action on affordable housing. With over 60% of all Saudi households in the middle income segment, there is obviously a huge demand for affordable housing across the kingdom.
The sixth factor is the challenging hotel landscape as the hotel sector is expected to be challenging in 2016 as overall demand softens.
The seventh factor is less capital outflow. Traditionally, private investors and family offices accounted for most of the capital outflow from Saudi Arabia into rest of the world.
In 2015, Middle East investors purchased more than $11 billion 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.
In 2016, there will also be increased selling activity from Middle East investors as they book profits and reallocate their funds – as a result, there will be increased transactional activity amongst Middle East investors.
“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 MENA.
He added that various real estate stakeholders will need to take a pragmatic approach and work together towards realigning themselves and filling critical gaps in the market.
“In the longer term, any structural change the government is embarking upon will contribute positively towards the real estate market. Overall, the Kingdom remains the GCC region’s largest economy and there is immense potential for the development of the real estate market despite short term challenges,” said Craig.
