Saudi real estate sector sees ‘more positive outlook’ in ’17

15/01/2017 06:50 AST

Despite a decline in Saudi Arabia’s GDP growth from 3.5 percent in 2015 to just 1.6 percent in 2016, liquidity in the market was eased by the major first time raise of a SR39.7 billion international sovereign bond sale.

According to JLL’s ‘2016 Year in Review’ report of Saudi Arabia, the more positive outlook for the real estate sector began with the resulting government release of payments totaling $10.6 billion to contractors and the SR20 billion injected into the banking system.

The recent OPEC meeting has paved the way for a more positive 2017 economic outlook, with markets eased by an agreement to reduce oil production and more stable prices with an expected average of $50.3/barrel according to Oxford Economics.

“The real estate market in Saudi Arabia has inevitably followed in the wake of macro-economic effects brought about by fluctuating oil prices. The government’s major plans to energize the market have resulted in a more positive outlook for 2017 in line with measures to counteract reduced government and consumer spending,” said Jamil Ghaznawi, Country Head of JLL, Saudi Arabia.

In an effort to diversify the economy and open the real estate market to smaller investors, the Capital Market Authority introduced new rules in 2016 allowing the formation of the Real Estate Investment Traded Funds (REITs) on the local stock exchange.

“The market is optimistic that by introducing REITs, the National Transformation Program’s (NTP) goal to increase real estate contribution to GDP from 5% to 10% annually will be achieved in addition to creating more transparency in the market.”

“In addition these funds could help provide an exit strategy for those developers seeking to create income producing assets rather than developments for sale,” Ghaznawi added.

The report also noted 2016 as an active year for white land tax and home financing which both have implications for the real estate market in 2017 as the changes start to come into effect.

The report highlighted the office, residential, retail and hotel markets across Saudi Arabia with detailed analysis of these sectors in Riyadh, Jeddah and Dammam Metropolitan Area (DMA).

The 2016 office market in Riyadh has been relatively inactive in terms of project materialization given the number of projects under construction. In 2017, the majority of office space will be delivered from one project; the first phase of ITCC (160,000 square meter.) Year-on-year office rents increased marginally by 1% due to an increase in rents outside of the CBD area for grade A and B buildings. Market-wide quarter-on-quarter rents decreased by almost 4%. Vacancies also affected by the economic slowdown.

In the residential market, approximately 4,000 units entered in Q4 2016. A further 25,000 units are expected to enter the market in 2017. In an effort to increase housing supply in the Kingdom, the government has taken initiatives to work with the private sector this year. Apart from Year-on-year rents for both villas and apartment, both of which decreased by 4%, residential performances remained relatively stable across the board in Q4 2016. This has been largely the case in sale and rent prices throughout 2016.

In the retail market there were no further completions in Q4 2016 however, looking ahead to 2017, there are a number of regional and super regional centers in the pipeline. Community center rents remained unchanged both Quarter-on-quarter and Year-on-year. Super regional centers on the other hand continue to show marginal decreases both Quarter-on-quarter (-1%) and Year-on-year (-2%). A trend which is likely to continue throughout 2017. Vacancies increased marginally Year-on-year and reached 9% as of Q4 2016.

In the hotel market there were no changes to the Riyadh hotel supply during the last quarter of the year and the total number of rooms was 11,800 at the end of the

Saudi Gazette