The residential market in Saudi Arabia continued to witness growth in the rental sector, while the sales market experienced a slowdown, attributable to the stricter mortgage regulations and lack of affordability, said a report.

According to a third party industry report, the housing supply in both Jeddah and Riyadh increased by 4,000 units in each city and was estimated at 785,000 and 984,000 units respectively at the end of third quarter of 2015, according to leading consultancy PKF.

In Jeddah, rental rates in both apartment and villa segments registered a y-o-y increase of 20 per cent and 5 per cent respectively, while sales rates in the above-mentioned sub-markets witnessed a y-o-y decrease of 4 per cent and 5 per cent respectively, it stated.

In Riyadh, average lease rates during the third quarter continued to grow, achieving a rise of eight per cent and six per cent in the apartment and villa segments respectively, while average sales prices across the capital declined by 1 per cent to 5 per cent y-o-y.

A need for the development of affordable housing persists in the Kingdom, given that there is an annual shortfall of between 100,000 and 200,000 homes.

According to official statistics by the Central Department of Statistics & Information, 47 per cent of the Saudi population is under the age of 24, which suggests that generated demand for affordable housing will continue to grow in the future, stated the report from PKF.

Therefore, the Ministry of Housing is heavily focusing to keep up a constant flow of affordable housing to meet current and future demand levels, it added.

To tackle the shortage of affordable housing in Saudi Arabia, Saudi Arabian authorities passed a new law in 2015 under which undeveloped land in urban areas will be taxed.

With approximately 40-50 per cent of the space in the kingdom’s major cities being undeveloped, the new law will encourage land owners to either commence development works or sell their land plots.
This, in turn, is expected to spur home building activity and help create more land for affordable homes, said the report.

On the office market scenario, PKF said the sector remained relatively flat during the third quarter. According to a third party industry report, average office rental prices in the capital witnessed a marginal y-o-y decline of one per cent during the quarter, reaching SR1,050 per sq m.

Vacancy rates rose marginally, recorded at 16 per cent. Although third quarter did not see the completion of any major office developments, a new wave of upcoming office supply is anticipated to enter the market in 2016 and 2017 in KAFD and ITCC areas, resulting in higher vacancy rates and lower rental indicators.

With regards to new office projects in Riyadh, property developer Cayan Group commenced construction works on the SR100 million CMC Office Tower, a 14-storey properety on King Fahd Road, which will feature high-quality Grade A office space.

The office supply in Jeddah increased marginally in the third quarter with the delivery of a few small-scale office developments and reached a total of approximately 855,000 sq m.

Due to the limited new supply, vacancy rates remained stable at seven per cent, while average lease rates registered approximately five per cent y-o-y increase to SR950 per sq m.-TradeArabia News Service