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Jeddah rents undergoing a price correction, dooming property speculation

In 2017, rentals of residential apartments dropped by 10-15% in Jeddah, contrary to the upward trend witnessed in the preceding years.

The information was released in a Real Estate Market report produced by KPMG Al Fozan & Partners, a leading audit, tax, and advisory services provider that includes a dedicated and specialized real estate team, according to Saudi Gazette, a Saudi daily.

The report explained that the drop in rentals came as a consequence of the departure of families of some expatriates, especially those with middle income, which contributed to an increase in the vacancy rate in the market.

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What was the average rent during the past year?

Rental rates and sale prices

The report noted that the average rental rates of apartments swung between $5,300 and $7,400 in eastern and southern districts of Jeddah.

While the average rentals ranged from $8,300 to $12,000 in the northern and western districts of the city.

The average sale prices of apartments in the city  started between $650 per sqm (southern side) and $1,600 per sqm (western side).

However, these prices can go up to $2,600 per sqm in high-end projects that offer additional amenities and services.

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What are the experts saying?

Old strategies have no future 

The Saudi Gazette reported the commentary of Eng. Rani Majzoub, Head of Real Estate with KPMG Al Fozan and Partners on the report:

“While the Residential Real Estate market in Jeddah is currently witnessing a correction in the sale and lease rates, this would serve the interest of the nationals by reducing the cost of housing which is a primary objective of any government.”

Majzoub added: “The attractive investment opportunities are for real estate developers who bring with them value-added real estate products/services and take into consideration the needs and abilities of their end users; since the old strategy of buying, keeping, and speculating land prices has no future potential anymore.”

“The new residential villa development projects will be appropriate in the northern area, Obhur, due to the increased demand and modern infrastructure.”

“Meanwhile, the eastern areas of Jeddah are suitable for the apartment development projects because of their proximity to the city center and the available integrated road network”, he added.

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30,000 residential units by 2020

With a current Jeddah residential market supply of 0.8 million units, the report expects an additional supply of 30,000 residential units by 2020.

The report added that the majority of the new supply is focused towards the north and east sides of the city as the central zones has become saturated with limited availability of land, while seafront areas are expected to offer further high-end products in the future.

KPMG’s report revealed that the performance of the retail sector remained subdued in 2017 and market has witnessed a modest decline of 4 – 5 %  in rentals.

The report also indicated that the new upcoming supply (if delivered as announced) amid ongoing slowdown is likely to put more pressure on the rental rates.

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Hospitality had its share

The report has also pointed out that the performance of hospitality sector has softened in 2017 and both the occupancy rates and the Average Daily Rates (ADR) witnessed a declining trend. The market has witnessed a decline of approximately 8 percent in occupancy rate, while ADR remained relatively stable, dropping only 2-3%.

Meanwhile, the report has also indicated that the city’s market is likely to witness the delivery of around 5,000 hotel keys in the coming 2–3 years, which will increase the current hotel stock by 47%.