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Rent in Saudi skyrockets as developers fall behind

Rent in Saudi skyrockets as developers fall behind

Supply-demand mismatch in Saudi may cause you to pay even more rent for your house and office space. Banque Saudi Fransi’s John Sfakianakis gives us an overview

May 10, 2011 5:20 by



Dammam, the largest town in the eastern region and home to a key port situated close to major oil terminals, is also the province’s cheapest site for real estate. A small villa in Dammam cost SR744,167 on average in H1, up 7.3 percent from H2. Large villas are 61 percent cheaper than they are in Alkhobar at an average SR863,333, unchanged from H2.

Going rates for apartments in the Eastern Province were more muted. The average advertised rate for large apartments climbed 2.1 percent to SR331,389, while smaller apartments were up 1.8 percent to an average SR236,944.

HIGH-PRICED LAND LEAD RESIDENTIAL COSTS

Land prices in Saudi Arabia are on the rise again, posting gains across the board, with particularly sharp rises in higher-income neighborhoods. Plots of residential land are now more expensive than they were in H2, 2008. As a result of the economic slowdown that followed the global financial crisis, the median price of a plot of residential land in Saudi Arabia fell almost 10 percent by the first quarter of last year. Since then, demand has picked up and the median price of land for home building is now SR1,631 per sq m, 13.5 percent higher than the same period last year and up 4.8 percent from H2.

Jeddah and Alkhobar land prices most supported this rise, the average asking prices for land in these cities advancing 18.3 percent and 20.2 percent, respectively, from a year ago.

Alkhobar is home to the priciest land in Saudi Arabia. In the district going by the name “High Rise”, including beachfront plots situated next to the causeway to Bahrain, land costs SR3,933 per sq m, up 7.3 percent from last year and the most expensive price for Saudi residential land. Seven of the 10 most-expensive residential neighborhoods measured by the survey, meanwhile, were in Jeddah in H1; land prices surpassed SR3,000 per sq m in all cases. It is important to note that data for Makkah excludes the prime real estate plots immediately surrounding the Kaaba.

Along with Jeddah, Eastern Province land prices are in many cases higher than in the capital Riyadh. The average cost of land was SR2,800 per sq m in Jeddah in H1, followed by SR2,600 in Alkhobar, SR1,667 in Dhahran, SR1,596 in Dammam, SR1,233 in Riyadh and SR558 in Makkah.

Still, Riyadh land prices have risen quickly in many neighborhoods, particularly more-expensive districts. For instance, north Riyadh – where villa prices have soared – also saw land prices jump by an average 29.3 percent from a year ago, and 7.2 percent from H2, to SR2,239 per sq m. On an annual basis, east Riyadh land prices were up an average of 14.3 percent, while those in the south climbed 10.8 percent and in the south 7.5 percent. Makkah land prices gained more slowly in H1, rising 4.7 percent from H2 levels on average.

Prices may be on the rise, but transactions for land are trending sharply downward, the survey showed. The value of land transactions in Riyadh fell 35.6 percent in March compared with the year earlier. In Dammam, the value of transactions was down 47 percent, data of the Ministry of Justice show. In the six months to April, SR27.3 billion worth of land transactions took place in Riyadh, down almost 43 percent from the same period a year earlier. Land transactions decreased a sharp 30.6 percent in Dammam over the same stretch.

RISE IN COMMERCIAL PLOTS

Commercial land plot prices are also climbing in Saudi Arabia, although over all they remain notably lower than they were in 2008. Business activity and private sector expansion have taken turns for the better in the Kingdom, and this has led commercial land prices to start strengthening after the median price fell almost 17 percent between H2, 2008 and H1 2010. The advertised rates of commercial land are up by an average 2.7 percent in H1 compared with H2, 2010, and almost 5 percent higher than a year ago, the survey showed.

In Riyadh, the asking price for prime commercial land situated on roads 40-60 m wide rose by a median 3.9 percent in H1 compared with H2 to SR4,417 per sq m. Land costs had fallen 19 percent in Riyadh between H2, 2008 and H1 2010, along with the general decline in economic activity. The median price in Riyadh is still 12 percent below 2008 levels.

The cost of land nonetheless gained quite quickly in a handful of Riyadh neighborhoods. Qortoba in the east, for instance, saw prices rise 10 percent from H2 levels, while the cost of land in Al-Shifa in the south advanced almost 14 percent over the same period. Prices climbed 11 percent in the north Riyadh C district.



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