Real Estate Market in Saudi Arabia – Growth, Trends, COVID-19 and Forecast (2021)
The Saudi real estate market is expected to register a CAGR above 9.74% between 2022 and 2027. Due to COVID – 19, the Saudi economy has been affected in various ways. It has been hit by weak global oil prices and crude production, which have slumped oil exports and government tax revenues.
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This was at a time when emergency health spending and government support programs were adding to budget pressures. Since May 2021, the Saudi real estate market has started to show an overall improvement in business activity following the downturn caused by COVID-19. After a deep contraction in 2020, the Saudi economy is on the road to recovery as new cases of COVID-19 stabilize at manageable levels, global conditions improve and the national immunization program gains momentum. the extent. Property tax relaxations, addressing labor shortages and affordable housing programs under various stimulus packages have been critical success factors for real estate companies across Saudi Arabia.
Construction and building activity in Saudi Arabia increased by 14% year-on-year (YoY) in the first six months of 2021. The Saudi real estate market saw an annual increase of more than 375,000 units multi-purpose, as around 100,000 new families across the Kingdom join the market every year. The government offers several incentives to foreign companies willing to work in the Saudi market and contribute to the growth of the real estate sector and the economy in general.
The value of commercial real estate sector transactions registered with the Ministry of Justice rose sharply to SAR 9.6 billion (USD 2.5 billion) in the first two months of 1443, ending on October 6, 2021 , compared to 5.7 billion SAR (1.5 billion USD) and 5.8 billion SAR. during the first two months of the preceding Hijri year 1442, a period ending on October 16, 2020. The value of residential real estate transactions during the first two months of 1443 totaled R17.9 billion (4.7 billion dollars), up 8% from SAR 17.7 billion (USD 4.7 billion), during the same period of 1442 and 1441.
The Saudi real estate market fell by 9.1% at the end of December 2021, with the value of transactions finalizing at a weekly rate below SAR 4.1 billion ($1.09 billion). All segments of the real estate sector recorded a decline, with transactions in the residential sector down 4%, the commercial sector down 11.7% and the total value of transactions in the agricultural and industrial sectors down 27.1%.
The Saudi residential market is growing at a rapid pace, with apartment values in Riyadh and Jeddah showing the fastest pace of growth in five years. Riyadh and Jeddah have seen apartment values accelerate by 17% and 12%, respectively, in the last 12 months alone (as of November 2021).
In the residential market, the delivery of units in Riyadh and Jeddah continued in the third quarter of 2021 as the government made further progress in its goal to increase the percentage of Saudi families owning homes to 70% here 2030.
Main market trends
The residential sector supports the country’s real estate market
Saudi Arabia has identified housing as one of its key projects under Vision 2030. The ministry aims to build 300,000 homes over the next five years in partnership with the private sector.
As post-COVID-19 conditions stabilize, residential mortgage lending recorded a 48% annual increase, with a total value of SAR 71.4 billion (USD 19.03 billion), in the first five months of 2021. In addition, based on the high demand for villa housing, as it accounts for 80% of total mortgages, the Sakani program of the Ministry of Housing (MOH) provided 77,000 housing units to citizens in the first five months 2021, i.e. around 55% of the target of 140,000 units by 2021.
Construction activity in the residential market remained somewhat active, with various projects being delivered in major cities, with approximately 26,500 units delivered in the first half of 2021. This brings total residential supply to 1.3 million and 840,000 in Riyadh and Jeddah. While the total stock for Makkah and DMA stands at 404,000 and 366,000.
On the performance side, asking selling prices for apartments and villas jumped almost 10% in West Riyadh compared to the same period last year (2020). At the same time, they also increased by almost 12% in the north of the city over the same period. n The construction of more than 106,000 new homes has been completed, while 101,000 homes have been under construction since the first quarter of 2021. The number of new homes exceeded 344,000 in 2020, reinforcing diversity and increasing the supply of homes quality with fair prices.
Average residential apartment prices during the first quarter of 2021 have fallen below USD 133,000 since 2020. Average land and house sales prices have stabilized over the same period. He explained that the lower prices reflect the provision of housing solutions and options that meet the desires of Saudi families in partnership with property developers in all cities and regions of the Kingdom.
International companies open regional headquarters in Riyadh
In October 2021, a total of 44 multinational companies received licenses to move their regional headquarters to the Saudi capital, Riyadh. Among the 44 companies are multinationals in sectors such as technology, food and drink, consulting and construction, including Unilever, Baker Hughes and Siemens.
Earlier in 2021, 24 companies had signed agreements to establish main regional offices – including PepsiCo, Schlumberger, Deloitte, PwC and Bechtel rather than overseeing operations remotely from the emirate of Dubai in the UAE.
Through the MNE Regional Headquarters Attraction Program, these companies now have direct access to the region’s largest economy, gaining financial and geographic opportunities while being part of one of the most exciting transformations that happen in any city in the world.
The second quarter of 2021 saw the registration of 600 new international companies in Saudi Arabia and their rental of first-class offices in Riyadh to coincide with the Kingdom’s guidelines under the program to attract regional headquarters for international brands.
Contrary to the global corporate trend to reduce office space by 20-30%, Riyadh is experiencing high demand for office space, especially prime office space, due to the multinational business attraction program. The creation of new government agencies and the effort of existing facilities to attract the best skills. Saudi Arabia has launched a stimulus initiative for foreign companies to exempt them from income tax and encourage them to move their regional offices to the Kingdom.
The market has high competition where the demand for new properties is increasing due to growing business activities and increasing competition.
Some of the major real estate development companies operating in Saudi Arabia are Al Saedan Real Estate, Kingdom Holding Company, Ewaan, SEDCO Development, Jabal Omar Development Company, Emaar.
Over 95% of local property developers are primitive in their work. The old ways of doing business would pose a huge challenge for them to supply the market with high-quality office buildings, as the Kingdom required all foreign companies, which have contracts with the government, to move their headquarters to Saudi Arabia. . This means that the country needs more office buildings to meet international standards to cover the huge demand from foreign companies and investors.
The market is expected to witness the aggressive competition between local and international developers. Companies must change their strategies to survive, and they can only do so by adopting international standards and practices.
International real estate companies are entering the Saudi market as soon as they can to secure their place and gain market share, as it is a growing and promising market in its booming early stages.
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