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 kippreport
Asking prices for villas in Riyadh continued their upward climb in H1 2011, leading a general rise in property and land prices across the Kingdom. It is also leading to developers rushing in to fill a widening gap in supply.
Banque Saudi Fransi’s (BSF) H1, 2011 Real Estate Survey showed the average advertised rate of high-demand smaller villas in Riyadh has soared by almost a third in the past year, the most-pronounced price rises in the Kingdom.
Rents for homes and offices steepened most in the Eastern Province, commercial land prices started escalating again in all Saudi districts and residential plots prices extended broad gains, particularly in Jeddah, north Riyadh and Alkhobar.
The survey, conducted from April 2 to April 27 by Saudi authorities, chart out a plan to implement a royal order announced in March to build 500,000 new homes without delay using SR250 billion in funds allocated by the government.
Our estimates show the Saudi housing market needs 1.65 million new units by 2015, or 275,000 new units per year, to meet demands of a population that has doubled in size since 1988 and continues to grow more than 2 percent per year.
POPULATION AND RENT INFLATION
Youth below the age of 30 accounted for almost 60 percent of the Saudi population in 2009 and this group of potential new homebuyers is poised to keep the pressure on Saudi real estate prices. Aside from villas, the going rates for large apartments also gained moderately in H1, particularly in north and east districts of Riyadh, according to the survey, which draws on real estate price data collected on six Saudi cities: Riyadh, Jeddah, Dammam, Alkhobar, Dhahran and Makkah.
The BSF Real Estate Survey is conducted twice a year to gauge trends in the kingdom’s real estate market. Property asking prices were collected from 37 real estate companies and agencies across Saudi Arabia. Given the lack of reliable data on the Saudi property sector, these data should be taken as an indication of the direction and level of asking prices, understanding that great discrepancies exist even within neighborhoods.
Agencies were requested to provide average asking prices for apartments of 120-135 square meters (sq m) (1,292 sq ft-1,453 sq ft) and 135-190 sq m (1,453 sq ft-2045 sq ft) in size, as well as smaller villas spanning 300-400 sq m (3,229 sq ft-4,306 sq ft) and larger villas of 400-700 sq m (4,306 sq ft-7,535 sq ft). Respondents were further asked to give average advertised prices for empty residential and commercial plots of land per sq m (10.8 sq ft) by neighborhood. BSF also gathered data on average office rents charged per sq m, rental rates for apartments and villas, and building material prices. A full breakdown of the survey’s findings is available in Appendix 1-5 at the end of the report.
Saudi families tend to prefer living in villas than in apartments, but affording detached homes has become extremely prohibitive. As a result of this, smaller-sized villas (300-400 sq m) and larger apartments (135- 190 sq m) are the most sought after units for sale in Saudi Arabia’s real estate sector at the moment. These preferences have guided price trends across the country.
In the 12 Saudi districts surveyed by the index, the median asking price of a small villa soared 20.5 percent compared with H2, 2010 to SR1.28 million, with some substantial price discrepancies based on the neighborhood. The sharpest increases in H1 occurred in upscale neighborhoods of north and east Riyadh and north Jeddah, in addition to Alkhobar, the most-expensive city in the Eastern Province. Larger villa (400-700 sq m) asking prices also gained by a median 13.2 percent to SR2.03 million.
Countrywide, the rise in apartment prices was more subdued in H1: Median asking prices for large apartments rose 4.6 percent to SR508.33 billion. Smaller apartments (120-135 sq m) increased in price by a median 1.7 percent compared with H2. The promise of a string of new, state-financed housing projects could lead some Saudis to put off plans to buy homes for a year or two in anticipation that prices may stabilize or fall once new supply enters the market.
SURGE IN PRICES PERSISTS
It has become considerably more expensive to own a villa in Riyadh in the past year. The average asking price of smaller villas in the 31 high-end neighborhoods of north Riyadh has risen by as much as a massive 59.4 percent since H1, 2010 in area C, which includes Al-Sahafa, Al-Ageeg and six other districts. The average price of a North Riyadh villa in this area stood at SR1.7 million compared with SR1.07 million in H1, 2010, and 13.3 percent higher than H2.