The State Of Real Estate Market of Saudi Arabia: 2019

Saudi Arabia Sees A New Boom In Its Real Estate Market.

As it may be, the world has witnessed many changes in the last few years, the changes that took place in Saudi Arabia might have been one of the most, if not the most shocking ones. The drop in prices in the real estate market due to the drop in oil prices took its effects in Saudi Arabia. Saudi Arabia being the owner of the world’s second-largest oil reserves has been economically dependent on the petroleum industries for long decades.

As a matter of fact, we would not be exaggerating if we said that it, along with the real estate market in Saudi Arabia, was the sole backbone for the kingdom’s economy. The oil industries contribute around 40 percent of the Saudi Arabian GDP, not to mention the other sectors that are related or dependent on the petroleum industry. This has come into play due to the very abundance of fossil fuels in the land of Saudi Arabia as well as the conservative and reclusive nature of its society. It is difficult for the Saudi Arabians than its competitive neighbours to attract investors from different industries like tourism and entertainment.

So it is that the Saudi Arabian economy was hit the hardest by the downfall of the oil prices that took place in the last couple of years. Also, when the price of the oil took a hit, the generated revenues were reduced, a lot, and, therefore, the government decided to minimize the damage by cutting down its spending and the subsidies it used to offer for its citizens but moreover they even started imposing taxes.

In all honesty, these actions and hits have weakened the Saudi Arabians’ purchasing power and their will to spend their money on acquiring new properties. The low prices also reduced the number of investors that were attracted to the region throughout the year.

It is also worth mentioning that expats play quite an immense and effective role. As it seems, more than 650000 expats are expected to leave KSA by the next year. This led to the rise of the calls for the Saudization of the local jobs on one hand, and a negative impact on the real estate market on the other.

Not only Saudi Arabia, but all of the GCC regions is impacted; but again, Saudi Arabia was impacted the most by it because of its sole economic dependence on oil prices. This overall has caused an immense drop in the overall prices in the real estate market of Saudi Arabia.

Another thing to notice, one of the reasons behind the drop in the level of the market demand is Nitaqat system which aims to provide more and more employment for Saudi’s and push the mobilization of immigrants back to their homeland.

Ewan AlMaali by RETAL is 4-bedroom villa housing project built to proffer complete ease to each of its tenants

The Future Of The Saudi Arabian Real Estate

Even though it has gone through tough times, especially in the last two years, the real estate market in Saudi Arabia maintains a positive outlook in general. This is due to the multiple reforms that are being currently executed by the Saudi Arabian government. Of the many reforms, the most notable one has come as a major part in the Saudi Vision 2030, AKA National Transformation Program. It seems that these reforms aim at overcoming the multiple obstacles that are facing the residential sector of the market like the high land prices and the imbalance between supply and demand.

Of the many important aspects that single-handedly affect the market in Saudi Arabia are as follows:

The Newly Issued: Value-added Tax (VAT)

The Kingdom of Saudi Arabia has introduced a 5% value-added tax to help revitalize its economic status. This major change has been rolled out in almost all of the GCC countries. The tax took effect on the first day of the last year, and it includes most goods and services with only a few exceptions. Many investors have expressed their concerns regarding this new tax law, especially considering the fact that the citizens of the kingdom have lived a tax-free life till 2017, it is important to mention that VAT is applied in most of the countries around the world and with percentages that reach up to 15% in some places.

Opposite to this Saudi Arabia is taking many measurements to counter and reduce the negative effect of the tax on the investment environments and the purchasing power of the residents, especially in the real estate market. For example, all the public services and residential rent are exempted from the tax. Also, the Value Added Tax is not to be applied to any selling properties to relatives up to the fourth degree. This has heavily reduced the negative effect that VAT could have had on the real estate market. 

More Tax? Yes! White Land Tax

In the start of the 2^nd quarter of 2017, Saudi Arabia levied a 2.5 percent White Land Tax. This ensured a certain help making good use of the idle residential and commercial lands in Riyadh, Jeddah and the Eastern Province. The new law enforced owners of lands that are 10,000 square meters or more to pay at the very least 2.5% of the land’s value as a tax or to start building on it within 12 months or less. This tax is expected to help increase the supply of affordable residential units by approximately 400000 units.

Ewan Al Nawras Live a lavish life of sheer luxury, built for you by the amazing minds and experience professionals of RETAL

A New Turn: Home Building in the GCC

The Saudi Vision 2030 or as said locally, the National Transformation Program had compelled the many different real estate firms in KSA to focus in building relatively larger real estate with higher accommodation. This has led to a change in the focus of these companies from focusing on single houses builder as a client to focus on the overall metropolis type of outlook of real estate in Saudi Arabia. This change of focus has completely and utterly increased home ownership by more than 50 percent before the start of 2020. Many companies are shifting from created spaces for rent to building luxurious forever homes for people that are willing to invest in the regions and the market.

Preferring Apartments Over Villas

Due to the decreased governmental revenues and their weakened purchasing power, the residents of Saudi Arabia have turned from purchasing villas towards affordable apartments. This has caused an albeit slow but significantly increasing demand for apartments that are expected to continue growing within the upcoming years. Many real estate builders are moving from building large villas to a large community with good sized but highly futuristic homes. One such real estate developer named Retal has been working around the various parts of the Kingdom creating luxurious and affordable living quarters. Retal is playing a major role in the overall positive outlook of the real estate market in Saudi Arabia.

The Grand is one of the most distinguished apartment buildings in all of Saudi Arabia Developed by RETAL

The Major Real Estate Markets Of Saudi Arabia

Riyadh:

Being the capital of the country, the city of Riyadh is considered as the most important real estate market in Saudi Arabia. However, it seems there has been an imbalance between the demand on the units for low as well as middle income market segments. The demand in the real estate market is expected to continue surging up within the upcoming years.

Jeddah:

Jeddah, being the 2^nd largest city in Saudi Arabia, its increasing population is expected to affect the real estate market very positively and it was predicted to increase by 2.5% on annual basis from 2018 till the next year. The demand in Jeddah was faced with insufficient supply in recent years. This issue is predicted to prevail through the upcoming years.

Eastern Province:

The Eastern Province houses most of the kingdom’s oil production, so the real estate market here is a bit tricky. In entirety the market demand of the province has been negative, this is due to the drop in oil prices. This impact was expected to last a short term and the Eastern Provinces are sure to follow the same positive trend in terms of their real estate market as the city of Riyadh and Jeddah.

The Nation Transformation Program’s Effects On The Real Estate Market.

The Saudi Vision 2030 most definitely aims to help the Kingdom of Saudi Arabia to survive the economic crisis it is going through as of now by completely shifting its focus to the development of the non-oil economic regions and the public service sectors. The major factors in the non-oil economic are the clean energy industry and the most important, the real estate market of Saudi Arabia. To sum it up, we can rest assure that the downfall of the real estate market in Saudi Arabia is expected to last for only a very minute term. This change in the status of economy has, in fact, predicted the deceleration of market prices and with the continuing help of the Saudi Arabian government newly-levied laws and policies and the movement towards increasing the dependence on the non-oil economic sectors, the real estate market is only going to grow and take an extremely positive trend so henceforth.