Saudi property prices to rise as ‘demand grows’

Property prices in Saudi Arabia are seen rising in 2012 as demand continues to outstrip supply, while most other real estate markets in the Gulf Cooperation Council area will likely remain under pressure this year due to significant over-capacities and challenging global economic conditions, industry analysts said. Saudi Arabia is facing a huge shortage in the residential sector that will likely keep prices buoyant despite increased government spending on infrastructure and housing schemes to cater to the kingdom’s 26mn-strong population. In contrast, other members of the GCC bloc have seen demand wane in the aftermath of the global financial crisis and as new supply-from building excesses undertaken during the boom period-hits the markets. “Out of the whole GCC region, Saudi Arabia is likely to see the most growth in real-estate prices during 2012-mainly driven by local demand and escalating land and construction costs,” said Matthew Green, head of research at CB Richard Ellis. “Other GCC countries who do not face such a severe shortage of housing for lower and middle income groups will on the whole see flat growth or further declines in capital values,” Green added. The kingdom currently faces a big demand-supply mismatch in the residential sector as only 35% of locals own homes, of which low and middle-income households make up 80% of the current unmet demand, analysts say. While the region’s biggest economy has taken steps to address this housing shortage, Saudi Arabia’s residential sales prices are still seen rising up to 5% per square meter in 2012, according investment bank Rasmala’s senior analyst Saud Masud. Saudi Arabia last year introduced several new initiatives to urgently tackle housing needs for the kingdom’s young and growing population as part of a $130bn package of handouts.Dubai-based contractor Arabtec Holding, which operates in Saudi Arabia, said the kingdom’s real-estate market would be the growth story of the region but warned that “from a price perspective, prices will not rise too much as supply will increase greatly” in the country. In the UAE-the region’s second-largest economy-residential sales prices are expected to decline about 15% as more supply comes online and demand remains subdued, says Rasmala’s Masud, while adding that he expects few new development projects to be announced. Dubai, which built the world’s tallest tower, was at the forefront of the regional real estate boom as it borrowed heavily to fund its building excesses, but prices in the emirate have fallen by more than 50% since peaking in 2008. Its neighbour Abu Dhabi suffers from similar supply-demand problems. Prices of residential property in Qatar, whose economy is among the fastest growing globally, are also seen falling this year-at least by about 10% according to some estimates-due to a supply overhang. Qatar’s government has chalked out an ambitious development plan ahead of hosting the 2022 FIFA soccer world cup. “Qatar and the UAE will see further declines in residential prices in 2012, Qatar will see prices fall because of high levels of building activity and continued work on started projects,” said Craig Plumb of Jones Lang LaSalle. JLL meanwhile expects residential prices in Kuwait, Bahrain and Oman to remain flat in 2012. “There will be less building activity in Kuwait, where there is less demand for more real estate from its small population and the government is seen to be more conservative in its view of development unless the supply can be substantiated,” Plumb added. Real estate activity in Bahrain is likely to be muted next year as the Arab Spring on the whole slowed the pace of development in the country, while Oman is seen as a less active property market as it continues its focus on tourism and eco-tourism and limited social housing, according to JLL.