On the back of challenges witnessed in 2015, namely the drop in oil prices, the residential sector in Saudi Arabia continued its slowdown in 2016, with transaction volumes and sale prices declining at a slower rate, Knight Frank KSA said Monday in its latest "Saudi Arabia Residential Market Report". Since the Arab Spring in 2011 various regulatory efforts at improving accessibility to real estate have been implemented. While these efforts are a step in the right direction, the policies are only slowly filtering through. Data from the REDF reveals that while real estate loans trended up sharply from 2012-2014, the rate of growth slowed throughout 2015. Meanwhile, the reduction in government spending is likely to impact the financing of real estate projects. Delays and scaling back of many real estate and infrastructure projects will further exacerbate the shortage of housing across the Kingdom. Key findings: Main Saudi Arabian cities have seen a shift in demand from sales to rentals Rental rates increased in 2015 and are expected to maintain their growth levels in 2016. A 2.5% white land tax and revisions to mortgage law are expected to revive demand in sales. 2016 is expected to see a re-prioritization of projects with an emphasis on affordable housing. Demand in Riyadh continues to be concentrated at the mid-to-lower end of the market. This trend is expected to continue into the future as Riyadh's population is estimated to grow at 2% per annum over the next couple of years. Concerns remain over the capacity of the development pipeline and the type of product that is being delivered to the market. Strong demand for rental property in Riyadh saw rental rates increase across the city. Meanwhile, average sale prices remain subdued as annual growth rates slowed, showing an annual 10% decline in the number of residential transactions in Riyadh (Q1 2016 versus Q1 2015). In Jeddah, historically demand for residential property has been concentrated in the city center. Given population growth estimates coupled with the shortage of land, demand is now shifting to the North of the city towards Obhur. Areas surrounding the Kingdom Tower and Jeddah Economic City are expected to see residential growth and similarly, plots in South Obhur and close to the airport are witnessing substantial activity, Rental rates in Jeddah increased on the back of a shift in demand from sales to rental property. Consequently, average sale prices remained flat as the volume of residential transactions in Jeddah decreased by 8% (Q1 2016 versus Q1 2015). Dammam and Al-Khobar have seen significant population growth over the past couple of years, which has been met with limited residential supply. Demand is expected to cool off as the fall in oil prices impacts the labour market, which is heavily dominated by expats. Rental rates maintained their stability over the second half of 2015 and into 2016. The slowdown in the economy and resulting cutbacks in the main economic industries is expected to slow demand in the medium-to-long term, exerting downward pressure on rents. The sales market is expected to remain buoyant, particularly for residential property in the south of Al-Khobar. The subject of creating suitable and sustainable zoning is increasingly being debated in order to ensure that future development meets the requirements of the fast-growing population. In addition the scarcity of land in some major cities, combined with key infrastructure projects underway (such as the Riyadh Metro), is providing the impetus for urban regeneration initiatives. Over the medium to long term these development strategies are expected transform cities for the better, improving the quality of life, affordability, safety and health of local communities – a central objective of the kingdom's leadership.
