Investment opportunities in Saudi Arabia’s real estate market look positive in light of new government initiatives and development plans in 2019.
The kingdom’s $295 billion expansionary budget, the highest-ever in its history, coupled with massive development projects, including Qiddiya and NEOM, is expected to incentivize the real estate sector.
“These milestone projects are key drivers of Saudi Arabia’s non-oil economic growth and are expected to trigger other large-scale real estate development activity,” said Dana Salbak, an associate at U.S. real estate and investment management firm JLL, MENA.
In 2019, inflationary pressures are expected to ease, while a push for Saudization and growth in the labor market are projected to reflect positively on the real estate segment. The kingdom’s real estate market is also expected to witness a healthy correction in 2019 following a surge in property prices over the last few years, according to the latest KPMG Al Fozan & Partners statement.
Diversifying into entertainment
In its attempt to diversify away from oil, Saudi Arabia has increased investment in the entertainment, tourism and hospitality sectors. The Qiddiya mega-entertainment project will see about $8 billion in infrastructure investments for a 334-square-kilometer 24-hour resort that is predicted to create 57,000 jobs by 2030. The Public Investment Fund’s (PIF) other giga-projects likely to drive non-oil economic growth include the Red Sea Project and Amala, a new luxury-wellness destination on the kingdom’s northwestern coast.
Cinemas are also making a return in Saudi Arabia after a 35-year ban. By 2030, the cinema industry is projected to add $24 billion to the economy and create 30,000 jobs.
Boosting home ownership
Saudi Arabia’s housing ministry announced ‘Sakani’ in November 2018 – a plan to construct about 19,500 residential units for its nationals. In collaboration with the Real Estate Development Fund (REDF), the ministry also launched ‘Sakani II’ with the aim to deliver 300,000 residential products in the kingdom.
The government also announced plans of a $32 billion mortgage market plan, which includes down payment support programs and loan guarantee schemes, aimed at increasing home ownership among Saudi nationals to 60 percent by 2020 and 70 percent by 2030.
Infrastructure growth and new industries
The King Salman Energy Park (Spark), which is expected to contribute $5.8 billion to Saudi Arabia’s GDP by 2035, will also fuel demand for commercial and industrial real estate. With world-class infrastructure and advanced supply-chain technologies, the park is projected to bring in foreign investment and promote private sector participation.
The soft opening of the new King Abdulaziz International Airport in Jeddah, the upcoming Riyadh Metro and the 448-kilometer Al Haramain High-Speed Railway are all hoping to build on the kingdom’s plans to be a global transportation hub that provides opportunities for foreign and private investors.
The ground reality
In Riyadh, the marginal rental declines are likely to continue in the residential market through 2019, but at a slower rate. A strong supply will see growth in the retail sector remain constrained, while the hotel sector attempts to combat downward pressures on average daily rates (ADR), the JLL report stated.
Riyadh residential market performance
Jeddah didn’t fare much better in 2018, with sluggish demand taking its toll on rent and sale prices in the residential sector. The city’s hotel market, however, outdid the rest of the country with ADR climbing 11 percent in November 2018, compared to the previous year.
Mecca witnessed mixed performance in 2018 with expansion works at the Grand Mosque only marginally increasing the number of Hajj pilgrims in 2018. According to the JLL report, the residential sector softened due to a strong supply pipeline, while increased competition in the retail markets impacted performance.