Saudi Arabia: Real estate returns to growth as developments gain pace

Saudi Arabia: Real estate returns to growth as developments gain pace
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Published August 29th, 2010 - 13:13 GMT

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Oxford Business Group

Real estate prices are on the rise in parts of Riyadh and Jeddah as Saudi Arabia's growing population drives up demand for residential properties, according to research undertaken by the Consulting Division of Oxford Business Group (OBG).

Rakesh Kunhiraman, Dubai-based Director of OBG's Consulting Division, said the growth witnessed in prime and emerging localities of the cities marked a turnaround for the Kingdom's two key real estate markets. The economic downturn had pushed down prices, while Jeddah also had to contend with further fall-out from the flash floods which hit the city late last year.

"Figures indicate that both cities are earmarked for tremendous growth, especially in prime residential districts and new growth areas in the north of Riyadh and Jeddah," he said. "We also expect low-cost housing, such as multi-storey apartments, to gain prominence during the coming years as the Kingdom's rapidly growing population stretches demand to an estimated 1.5mn new units by 2015."

Kunhiraman said that the districts of Al Masiaf, Al Muruj, Al Mursalat and Al Ghadir, which are situated to the north of Riyadh's Central Business District (CBD), were generating interest among buyers, while the localities to the north of Jeddah, including the corridor close to the Corniche, were earmarked for growth.

"Riyadh's development has shifted towards the northern district due to high land prices coupled with limited availability in the core CBD areas of the city," he said. "The market is now showing gradual signs of recovery, particularly in prime residential districts which have witnessed a rise of 3% in sale prices during the past 12 months."

Kunhiraman said that prices in Jeddah's sought-after Corniche were being kept steady following the construction of a number of high-rise luxury apartments in the area.

"The northern districts of Al Andalus, Al Basateen, Al Hamra'a, Al Khalidiyah, Al Mohammediyah, Al Nahda, Al Nayeem, Al Rawdah, Al Salamah, Al Shatee and Al Zahraa are proving popular thanks to their proximity to the Corniche and this trend is extending towards the northern corridor," he said.

While some localities in the south and east of Jeddah have experienced a slight fall in prices, Kunhiraman said he still expected these areas, which are dominated by low and middle-income residents, to influence growth in the sector.

"The government's draft strategic plan indicates that although Jeddah is expected to grow towards the northern corridor, this will be balanced with affordable, residential developments in the eastern and southern regions of the city," he said. "We expect the low and mid-income section of the population to be the primary demand driver for the residential sector, with affordability playing a key part in growth."

As the sector awaits news on the introduction of Saudi Arabia's new mortgage law, speculation continues to mount about whether supply will be able to meet demand when the legislation is introduced, especially in the affordable housing segment.

Like many observers, Kunhiraman believes the disproportionately large number of residential units earmarked for high-income buyers will emphasise the imbalance in supply once the mortgage law is introduced. "Most new developments are targeting the high-income segments of the population which constitute a relatively small share of existing demand," he said. "This points to a severe shortfall in supply in the low to mid income segment." 


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