The residential sector in Saudi Arabia remained relatively stagnant during the second quarter, thanks to the new mortgage regulations which require buyers to make a minimum 30 per cent down payment on any purchase, said a report.

This new rule has in fact affected residential transactions across the kingdom which fell 14 per cent in the first half compared to the same period last year, stated leading accounting and consultancy group PKF in its report.

The constant influx of migrant workers is also believed to have contributed to the housing deficit as they occupy residential units in some urban neighbourhoods, the report stated.

In order to alleviate some of the pressure on housing, Saudi Aramco too announced plans for the construction of 8,521 homes for its employees in the city of Dhahran.

On the residential market scenario, the PKF report said the supply in Riyadh and Jeddah increased by 9,000 and 12,000 units respectively during the first half, bringing the total housing supply to 980,000 units in the capital and 781,000 units in Jeddah.

In order to tackle the lack of affordable accommodation in the kingdom, the Ministry of Housing has recently approved the construction of 25,500 apartments, which will be delivered in major cities across the country, including Riyadh, Madinah, Jeddah, Dammam and Qatif.

In Jeddah, the sales and rental rates in the apartment segment performed noticeably better than villas during the first half, reporting year-on-year (y-o-y) sales increases of 11 per cent and rentals of 14 per cent, while the villa segment witnessed a drop of seven per cent and one per cent in the sales and rental sectors respectively.

Quarter-on-quarter (q-o-q) figures, however, reported higher increases in sales prices of villas at five per cent, up from a one per cent increase in the apartment sector.

According to PKF, this has been mainly due to a jump in villa prices in the high-end western districts of Jeddah, which are less affected by the new mortgage regulations. In the rest of the city, however, villa prices fell by approximately 20 per cent over the last year.

In Riyadh, the enactment of the new mortgage law also put downward pressure on sales prices, which dropped q-o-q by one per cent for apartments and 0.5 per cent for villas.

Conversely, lease rates indicated an increase of two per cent and one per cent for apartments and villas respectively, due to a moderate demand shift from the sales to the rental sector, stated the report.

The high-rise residential apartment market in the kingdom has witnessed a shift in product offering from traditional 'standard' residential towers to luxury branded developments, it added.

PKF said the focus was now shifting to offering more premium facilities within modern luxury developments, driven mainly by rising income levels and changing lifestyles.

Notable future luxury residential developments will include Rafal Residences and Rafal Living in Riyadh and Kingdom Tower in Jeddah, it stated.

On the office market scenario, PKF said Riyadh remained relatively stable during the second quarter due to further delays in the delivery of key commercial projects.

According to a third-party industry report, the average rental prices witnessed a marginal y-o-y decrease of 0.5 per cent, bringing down the average lease rates to SR1,065 ($284) per sq m.

Quarterly statistics, however, indicate a rental increase of one per cent for Grade A and Grade B office spaces, with prices standing at SR1,290 ($344) per sq m and SR885 ($236) per sq m respectively.

The vacancy rates across the city remained unchanged at 17 per cent y-o-y, despite the completion of some of the commercial buildings in the IT and Communications Complex (ITCC), which saw the delivery of 60,000 sq m of new office space.

The report said things are likely to change next year, when almost 500,000 sq m of new office space will enter the market in the form of two mega projects - King Abdullah Financial District (KAFD) and the ITCC.

The projected increase in supply will most certainly result in higher vacancy rates and lower office rental rates, it added.

Unlike the Saudi capital, in Jeddah, the demand for office space remains high with an emphasis on well-located offices from government agencies, said PKF in the report.

Limited additional office supply entered the market in recent times, which resulted in vacancy rates declining from eight per cent in the second quarter of 2014 to six per cent for the same period this year.

The average rents for Grade A and Grade B office spaces have increased by six per cent for the last one year, achieving rates of SR955 ($254) per sq m.

Future office developments, slated for completion in the second half include Al Khair Tower, Al Andalus Crown Tower and 733 Lotus, said the report by PKF.

In the Eastern Province, the office space supply and demand indicators remained largely unchanged during the recent quarter and no major developments are in the pipeline, it added.-TradeArabia News Service