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Saudi's $32bn housing fund will boost residential construction

by Neha Bhatia on Feb 10, 2018

Winds of change: A socio-economic evolution is reshaping Saudi Arabias residential market
Winds of change: A socio-economic evolution is reshaping Saudi Arabias residential market

Meanwhile, property growth was limited, but steady in Jeddah, which posted 1,000 residential unit completions in Q4 2017. Overall residential supply in Jeddah increased by approximately 10,000 units, raising the city’s total stock to 813,000 units in 2017, even as “no notable completions” were recorded during the year. While residential sales and rental values reduced across the city, JLL noted signs of stabilisation in the market, “with the rate of decline slowing towards the end of the year”.

Optimistically for Jeddah, the development progress on projects such as the 242-unit J-One, the 140-unit Diyar Al Salam Residences, and the 85-unit Golden Tower could see “up to 1,100 quality units enter the market in Q1 2018”.

“A further potential 2,400 apartments, part of the first phase of Al Ra’idah, could be delivered in 2018 if the project is handed over as planned,” JLL’s report continued.

Al Ra’idah, according to the consultancy, will mark the largest delivery of community residences in Jeddah in a year, and this trend is likely to continue as master-planned communities are added to the city’s development pipeline, JLL added.

Apartment transactions in Riyadh rose by 12% in 2017, compared to 2016 figures, and prices recorded an annual drop of 4%, JLL’s report said. Similarly, apartment rents in Jeddah showed a 2.7% Q4 2017 dip “in areas synonymous with expatriates”, though rents remained relatively stable in the city during that period.

The performance of Saudi’s residential rental sector in 2017 was perhaps most succinctly reflected in the Q3 2017 financials of a diversified conglomerate in the country. Red Sea International Co revealed in a filing to Tadawul that a 23.2% decline in rental sales was partly responsible the reduction in its gross profit margin for Q3 2017.

The developer’s revenues decreased due to a 29.9% reduction in building sales, compared to corresponding quarterly figures for 2016. Overall, Red Sea International Co – which owns assets in Saudi Arabia such as fixed accommodation and hotels in Yanbu and Jubail – reported a net loss of $3.4m (SAR12.7m) in Q3 2017, a significant drop compared to its Q3 2016 net profit of $2.8m (SAR10.5m).

Some of these market movements can be attributed to the launch of value-added tax (VAT) and expat levies in Saudi Arabia, as well as their impact on the kingdom’s demography, and these factors could continue to influence the kingdom’s residential sector in 2018 as well.

For instance, Saudi Arabia, home to millions of expatriates, is noting the effects of repatriations on its property market, JLL found. Commenting on the impact in Jeddah, it added: “The tax levy on expatriates could be restricting demand for rentals, as expatriates repatriate family members to avoid [the payment].”

It is impossible to accurately foretell how these externalities may affect the kingdom’s residential property segment in 2018. However, Saudi’s steadfast investments in improving its housing stock will undoubtedly have a positive impact in the country this year.