Saudi Real Estate Price Index plunges by 6.83% in 2Q 2018

Time : July 30, 2018

Fatima Muhammad

JEDDAH — The General Authority for Statistics revealed yesterday the Real Estate Price Index data for the second quarter of the year 2018. The general index dropped by 6.83 percent in the second quarter of 2018 compared to 2.84 percent in the first quarter of 2018.

Real Estate Price Index for the second quarter of 2018 compared to the first quarter of 2018 declined by 0.7%, due to changes in the prices of the three components of the sector which are residential, commercial and agricultural units.

The residential items have dropped by 0.8 in the second quarter of the year 2018 compared to the first quarter of the same year. These include plots, villas, apartments buildings and houses. Figures show that residential lands dropped by 0.9%, villas dropped by 1.7%, apartments by 0.6%, houses by 0.1% and buildings by 0.2%. The decline in the residential lands was 0.4% while only 0.1% dropped was documented for agricultural lands.

A total of 65 percent of the lands in the kingdom are residential while 31 percent is commercial and only 4 percent is agricultural.

GAState has collected the basic data from the Ministry of Justice to construct the real estate price index and to track changes taking place in the real estate prices. GAStat stated that it has developed an integrated system to fulfill all requirements necessary for collecting and auditing data, along with calculating the index. This should develop sophisticated real estate statistical indicators that measure the performance of the real estate market in KSA, bridge the gap in real estate data, and satisfy international, regional and domestic requirements in this regard.

GAStat said it offers this data to researchers, planners, research centers and entities interested in economic affairs. The aim is to defines distinctive real estate statistical indicators that measure the performance of the real estate market in KSA, and bridge the gap of real estate data. In addition it should help relevant authorities take sound economic decisions in this regard. This Index data is also helpful in the economic and statistical analysis of real estate price movements, and making predictions about real estate trends in the future.

This article was first published in  Saudi Gazette

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New energy park to fuel Saudi demand for office space

Time: July 16, 2018

The development of King Salman Energy Park (SPARK), one of the largest investments in the Saudi Eastern Province, is set to boost sectors of Dammam Metropolitan Area’s (DMA) real estate market and in the long term contribute to national GDP, says JLL’s latest report.

In line with Saudi Vision 2030, the energy park is being undertaken by Saudi Aramco and will serve as an economic catalyst, creating tens of thousands of jobs in a global industrial hub for energy-related manufacturing services, boosting the office sector in the DMA area.

“The plans to diversify the Saudi economy away from the oil and gas sector presented a less positive outlook for oil-rich Dammam compared to other cities across Saudi. However, this new energy-hub demonstrates major investments being made within the energy sector itself to fuel economic growth,” said Craig Plumb, Head of Research, MENA at JLL.

“SPARK presents a more positive outlook for the DMA region as development of the park is expected to enhance the region’s office market as tenants come on board,” he continued.

As part of the National Transformation Program, the energy park is estimated to contribute SAR 22.5 billion ($6 billion) to the national GDP annually once developed by 2035. The energy hub will boost the downstream petrochemicals sector and will increase the contribution of local content across different industrial sectors.

For example, Saudi Aramco recently announced awarding 10-year purchase agreements to 16 pressure vessels manufactures which will increase demand for office space in the DMA in the coming years.

In H1 2018 the office market continued to soften. Supply of office space increased with the completion of Al Rashid Office Tower, Sidra Complex, and Al Waleed Business Center. Demand is expected to increase in the medium to long-term, in line with the target for Saudi Aramco to source 70% of its inputs from local companies.

Across other sectors, the residential stock continues to grow, at a slightly slower rate than in previous years. The retail sector recorded no new completions in H1 2018, with the total stock remaining around 1 million sqm.

The hospitality sector was active in H1 2018, with 5 new hotels and 2 serviced-apartment projects entering the market in DMA.  As with other markets across the region, occupancies have held up while average room rates have continued to decline and this pattern is expected to continue over the rest of the year.

The full report can be downloaded here. 

JLL is a leading professional services firm that specializes in real estate and investment management.

This article was first published in AMEinfo

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Riyadh Metro to help boost Saudi property sector, says Knight Frank

Time: June 10, 2018

The $23 billion (Dh84.48bn) Riyadh Metro is expected to help increase demand for homes across the Saudi capital and boost the value of property in secondary neighbourhoods, reviving the kingdom’s residential market.

The 176-kilometre metro can potentially drive up the value of real estate in the Saudi capital with the improved transport connections when it starts operating in 2019, according to a report by property consultancy Knight Frank published on Sunday.

“The Riyadh Metro is set to have a marked effect in relation to real estate dynamics and the ability to spur meaningful urban regeneration,” said Raya Majdalani, research manager at Knight Frank.

The metro, which has six lines and 85 stations running with driverless trains, will be the biggest mass-transit system under development, according to Saudi officials. It is part of the kingdom’s wide-ranging plan for economic and social reform.

The availability of metro connections could lead to a more defined outer boundary for Riyadh and therefore boost the value of locations that have typically been seen as secondary areas, creating future “value hotspots”, the report said.

The mixed-use developments around major metro hubs could also meet the growing demand by the country’s young population for smaller and more affordable homes, according to Knight Frank.

The shift in demand away from villas to smaller units with good transport connections is driven by young Saudis whose tastes are fast-changing and in line with global trends towards smaller households.

In 2017, the Saudi market weakened because of this change in demand that was mismatched with a supply of villa accommodation, according to the consultancy.

“With demand shifting away from villa stock towards more affordable, smaller units, mixed use urban regeneration around key metro hubs could respond to this growing market segment,” the report said.

Smaller homes close to public transport are more affordable than villas and this will assist young Saudis who will need home financing.

“As social norms change within the kingdom, the move away from the family home is coming earlier in each generation,” the report said. “Given the Kingdom’s young population dynamics, this only stresses the requirement for such stock.”

The push for mass-transit systems also has wide-ranging implications for the city’s real estate market in terms of land use, new projects, additional investments and revival of third-tier urban areas, according to the report.

Investments in infrastructure will open up previously under-used land for both residential and commercial use.

As public transport extends through the city, new real estate projects may rise in previously poorly connected or secondary locations. These neighbourhoods are expected to benefit and have the potential to outperform the rest of the market.

The Riyadh Metro will cut journey times across the capital, open up new markets and improve connections in existing ones, the report said.

This article was first published in The National

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Growth but challenges ahead for Saudi real estate sector

May 4, 2018

  • Signs that market is bottoming out after two years of falling prices
  • Riyadh commercial property sector to feel the impact of King Abdullah Financial District

RIYADH: The Saudi Arabian property market has been through two years of change and adjustment, and now looks set for growth — but there are significant challenges in both commercial and residential real estate in the Kingdom.

That was the verdict of property professionals at the Euromoney conference in Riyadh, where experts discussed the sector and its finances at a gathering that could best be described as “mixed” in its outlook.
“The opportunities are humongous,” said Abdulrahman Bajunaid, chief executive of RAFAL Real Estate, referring to the boost the sector is set to get from a mixture of government stimulus, economic growth and demographic pressure.
Not everyone agreed, especially on commercial property. “Maybe the real solution is to change all the office space in central and south Riyadh to residential,” said Ziad El-Chaar, chief executive of Dar Al-Arkan, Saudi Arabia’s biggest listed developer, about the capital’s variable conditions.
But there was general agreement that overall the market was on the up. Imad Damrah, managing director of the KSA branch of Colliers International, said that after a period of volatile real estate prices in the economic slow-down caused by falling oil prices, “people have adjusted to the new realities.” He was hopeful that growth would resume.
It has been an unpredictable few years for developers, financiers, investors and buyers. In residential, consultant Knight Frank said that some apartment prices in the best parts of Riyadh leapt by 36 percent last year, but villa prices were 5 percent down. In Jeddah and the Eastern Province overall price falls were well into double digits.
“A common trend witnessed in sales prices across key cities is that apartment prices have been less affected than villa prices as a result of a shift in demand from villas to apartments due to affordability constraints,” said Raya Majdalani, research manager at Knight Frank, in a recent report.
But data from the General Authority of Statistics suggests that residential real estate prices have flattened in recent quarters, perhaps an indication that the market has bottomed out and may be close to stabilizing.
Colliers believes that the evolution of the market was also being seen in commercial and office property. “This is evidenced by the recent entrance of themed office parks and the announcement of a forthcoming supply of integrated mixed-use developments across major cities,” its latest review said.
The capital’s commercial sector is also facing another major challenge, with the new space that will come on the market as a result of the accelerated development of the King Abdullah Financial District, just outside the center of Riyadh. Some estimate that it will double the amount of commercial and office space on offer to big banks and other financial institutions.
The other factor influencing real estate trends in the Kingdom is the growth in the real estate investment trust (REIT) sector. REITs are booming, with several listing on the Tadawul recently, with more on the way.
“REITs are a big factor, allowing developers and investors access to funds in the money markets,” said
El-Chaar. Bajunaid, of RAFAL, was even more positive. “I love REITs. They make me feel alive,” he said.
But others warned about the long-term prospects for the REITs boom. “It all depends on the underlying quality of the transactions beneath the REIT,” said Abdullah Al-Sudairy, chief executive of property finance company Amlak International.
There were particular challenges attached to residential property, according to El-Chaar. He calculated that the amount of new-build by corporate developers over the past 10 years amounted to no more than 5 percent of the total, with the unregulated self-build market by far the biggest force in new housing.
“We have got to have restrictions on self-build. It is impossible to compete with such an unregulated market,” El-Chaar said.
The drive toward entertainment and leisure as part of the Vision 2030 strategy is also a trend affecting property developers and architects. “All malls are being transformed into entertainment hubs. People will not be shopping at malls in such large numbers in the future with the growth of online retailing, so malls will have to become like the town center or the village square,” said El-Chaar.
Al-Sudairy thought there were more fundamental factors at work. “The main problem is demand, through the pressures of jobs and income. We cannot build houses if people cannot afford them, and we cannot build malls if people cannot afford to shop.”
Not everyone agreed, especially on commercial property. “Maybe the real solution is to change all the office space in central and south Riyadh to residential,” said Ziad El-Chaar, chief executive of Dar Al Arkan, Saudi Arabia’s biggest listed developer, about the capital’s variable conditions.
But there was general agreement that overall the market was on the up. Imad Damrah, managing director of the KSA branch of Colliers International, said that, after a period of volatile real estate prices in the economic slow-down caused by falling oil prices: “People have adjusted to the new realities.” He was hopeful that growth would be resumed.
It has been an unpredictable time for developers, financiers, investors and buyers. In residential, consultant Knight Frank said that some apartment prices in the best parts of Riyadh leapt by 36 percent last year, but villa prices were 5 percent down. In Jeddah and the Eastern Province overall price falls were well into double digits.
“A common trend witnessed in sales prices across key cities is that apartment prices have been less affected than villa prices as a result of a shift in demand from villas to apartments due to affordability constraints,” said Raya Majdalani, research manager at Knight Frank, said in a recent report.
But data from the General Authority of Statistics suggests that residential real estate prices have flattened in recent quarters, perhaps an indication that the market has bottomed out and may be close to stabilising.
Colliers believes that the evolution of the market was also being seen in commercial and office property. “This is evidenced by the recent entrance of themed office parks and the announcement of a forthcoming supply of integrated mixed-use developments across major cities,” its latest review said.
The capital’s commercial sector is also facing another major challenge, with the new space that will come on the market as a result of the accelerated development of the King Abdullah Financial District, just outside the the center of Riyadh. Some estimate that it will double the amount of commercial and office space on offer to big banks and other financial institutions.
The other factor influencing real estate trends in the Kingdom is the growth in the real estate investment trust (REIT) sector. REITs are booming, with several listing on the Tadawul recently, and more planned.
“REITs are a big factor, allowing developers and investors access to funds in the money markets,” said El-Chaar. Bajunaid of RAFAL was even more positive. “I love REITs. They make me feel alive,” he said.
But others warned on the long term prospects for the REITs boom. “It all depends on the underlying quality of the transactions beneath the REIT,” said Abdullah-Al Sudairy, chief executive of property finance company Amlak International.
There were particular challenges attached to residential property, according to El-Chaar. He calculated that the amount of new build by corporate developers over the past ten years amounted to no more than 5 percent of the total, with the unregulated self-build market by far the biggest force in new housing.
“We have got to have restrictions on self-build. It is impossible to compete with such an unregulated market,” El-Chaar said.
The drive toward entertainment and leisure as part of the Vision 2030 strategy is also a trend affecting property developers and architects. “All malls are being transformed into entertainment hubs. People will not be shopping at malls in such large numbers in the future with the growth of online retailing, so malls will have to become like the town center or the village square,” said El-Chaar.
Al-Sudairy thought there were more fundamental factors at work. “The main problem is demand, through the pressures of jobs and income. We cannot build houses if people cannot afford them, and we cannot build malls if people cannot afford to shop.”

This article was first published Arab News

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Knight Frank: Saudi housing market may have “bottomed out”

Time:  February 5, 2018

Research on real estate prices conducted by property consultant Knight Frank suggest that 2018 could see an end to the drop in housing values witnessed in Saudi Arabia’s main cities over the past two years.

According to Knight Frank’s Saudi Arabia Residential Market Review – January 2018 recent quarters  have seen residential real estate prices flattened, which, the report adds: “could be an indication that the market has bottomed out and may be close to stabilising following a year of rapid decline.”

The residential market across the main cities of Saudi Arabia started decelerating in 2016 as transaction volumes and sales prices came under pressure following a period of relative resilience. In 2017, the slowdown in performance continued, the report notes.

“The trend towards a weaker residential market is mainly due to eroding market liquidity and is exacerbated by a combination of more inherent factors namely the lack of affordability and limited access to financing, supply shortage in the mid-to-lower end of the market and the lack of suitability of existing stock,” commented Raya Majdalani, research manager, Knight Frank.

Looking at the performance of the residential market across the main cities of Saudi Arabia, Knight Frank remarks in the report that transaction volumes and values have softened in 2017 although at a slower pace than in 2016.  A common trend witnessed in sales prices across key cities is that apartment prices have been less impacted than villa prices as a result of a shift in demand from villas to apartments due to affordability constraints.

While Knight Frank says it sees current dynamics prevailing in the short term, it remains broadly positive as a result of government initiatives aimed at addressing key challenges restraining the residential sector.

The report continues: “Recent initiatives include the release of regulations for the introduction of a 2.5% ‘white land’ tax on undeveloped land plots, the approval of regulations for the use and listing of Real Estate Investment Trusts (REITs), the introduction of a new mortgage law to boost Saudi Arabia’s home ownership rate, the development of a home-building programme named Sakani by the Ministry of Housing, the launch of the Wafi online program and the creation of a real estate refinance company by the Public Investment Fund.”

“Despite lacklustre performance throughout 2017, we remain broadly positive when it comes to the medium term outlook, mainly as a result of government initiatives aimed at addressing key challenges restraining the residential market,” said Stefan Burch, partner, Knight Frank Saudi Arabia.

Recently introduced strategic reforms aimed at creating a favourable environment for investment and strengthening the non-oil sector have placed a focus on real estate which is forecast to double its contribution to economic output by 2030. Moreover, the implementation of various urban regeneration initiatives including mixed use communities and investment in infrastructures are expected to act as catalysts for sustainable development and a more active residential market.

“Longer term, demographic factors will continue acting as demand generators for the residential market in Saudi Arabia,” the report states. “This includes a large population which has seen a sustained growth rate over the past decades and a long-term trend towards smaller size households. On a macroeconomic level, the economy is expected to gradually adapt to the new norm in oil prices as it diversifies away from its dependence on the hydrocarbon sector in line with economic reform programs. Therefore GDP growth should regain some momentum in the medium term mainly driven by non-oil GDP, which should provide support to the recovery in the residential market.”

Overall, the drivers for the Saudi Arabian residential market appear to be generally positive for the long term despite some key risks to market performance including: heightened geopolitical risks weighing on consumer sentiment, further volatility in oil prices and increased challenges entailed by the implementation of economic reforms.

This article was first published in Me Construction News

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REIT boom gathers pace in Saudi Arabia

Time: December 19, 2017

LONDON: The boom in Tadawul-listed real estate investment trusts (REITs) continues with details emerging on Monday about one of the largest so far — a vehicle owned by Derayah Financial that will raise more than SR1.1 billion according
to a statement from the company.
Subscription for the Derayah REIT will start on Dec. 27 and end on Jan. 7, 2018, said the announcement.
Derayah added it would be one of the biggest and most diversified funds with properties in sectors that span offices, residential, warehouses, retail and hospitality.
The REIT is invested in 15 assets, located in six cities: Riyadh, Dammam, Jubail, Khobar, Jeddah, and Al-Ahsa.
Derayah Financial is licensed by the Capital Markets Authority, which announced the company’s plans to list on the Saudi stock exchange on Dec. 6.
During the subscription period, investors can apply for subscription via Riyad Bank, National Commercial Bank, Arab National Bank, and Derayah Financial. The minimum subscription amount is SAR10,000.
The company said the REIT would distribute at least 90 percent of its net profits every six months. Net yield to investors is expected to reach 7.22 percent in the first year of operations.
Commenting on the offer, the CEO of Derayah Financial Mohammed Al-Shammasi said: “As part of our efforts to present unique investment products to our clients, we are now launching the most diversified REIT in terms of the number of properties, the geographic distribution, and the number of tenants, with an attractive return on investment that is higher than the currently traded REITs.”
About six Saudi REITs have listed on the Tadawul in recent months following legislation passed at the end of 2016, clarifying the rules governing the listing of these property vehicles that have long been around in Europe and the US but are relatively new in the Gulf. Two have been launched since in Dubai since 2014.
In a comment posted on Knight Frank’s website, Raya Majdalani, regional research manager, said Saudi REITs were being driven by capital seeking exposure to the Kingdom’s commercial real estate market. He added every REIT that had been listed in the Kingdom initially traded at a large premium to Net Asset Value (NAV), indicating investor appetite for income producing real estate as well as the potential depth of the market.
Said Majdalani: “Over the longer term, REITs are expected to increase private-sector participation in the financing of real estate markets by accessing additional pools of capital. This is in line with government efforts to stimulate the real estate sector in Saudi Arabia by attracting private-sector investments while serving the broader target of the strategic economic reforms aimed at diversifying the Kingdom away from its dependence on the hydrocarbon sector.”
But he added there were a number of headwinds that could challenge the development of the REIT market in Saudi Arabia. A major factor would be the quality and supply of suitable assets that can be placed within REIT structures.
“In general the Saudi Arabian market is dominated by lack of instructional-grade real estate when compared to the markets of both emerging and mature REIT jurisdictions. As the success of the REIT market will in part rest on a sustainable pipeline of future assets, the softening of the current economic climate could hinder the development sector and with it future supply,” said Majdalani.
Historically, the main attraction of REITs for investors has been the dividend yield, based in part from rising rental income and portfolio growth — but there is also the potential to benefit from capital appreciation. But this, like everything else linked to the stock market, is not guaranteed.

This article was first published in Arab News

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The Development of REITs in Saudi Arabia

Time: November 02, 2017

We are pleased to announce Knight Frank’s latest report discussing the recent establishment of REITs in Saudi Arabia: ‘Real Estate Investment Trusts – Insights on Saudi Arabia – Q3 2017’.

The report provides highlights on the global and GCC REIT markets alongside analysis on thedevelopment of the REIT market in Saudi Arabia by covering the regulatory framework, the implicationsthat REITs may have for investors and the real estate sector and key challenges the sector may face.

GCC countries are moving forward with the establishment of a regulatory framework for the use and listing of REITs, with listings intensifying in recent months. In Saudi Arabia six REITs have been listed on the Tadawul in a short period of time following the approval of regulations in November 2016. The number of successful listings and the number of applications that are currently in the pipeline clearly show the pent up demand for REITs in the kingdom.

Raya Majdalani, Research Manager, comments on the recent development of a REIT market in Saudi Arabia.

Mainly driven by the amount of capital seeking exposure to the commercial real estate market, REITs that have been listed in the kingdom initially traded at a large premium to Net Asset Value (NAV), indicating investor appetite for income producing real estate as well as the potential depth of the market. This trend is in part a function of the relatively small number of listed vehicles available to investors; as the REIT market gains in maturity, pricing is expected to move more in line with NAV.

To date the investment strategy for REITs has on the whole been non-thematic, partly as a result of a chronic lack of good quality assets with long term, sustainable income. As the market matures, the emergence of thematic REITs is seen as a logical development whereby investors will be able to target specific real estate sectors rather than taking blended real estate exposure. This will be particularly important for investors seeking exposure to non-cyclical, defensive sectors such as healthcare and education.

REITs traditionally appeal to investors looking for more liquid exposure to the real estate sector, with the added benefits of diversification and long-term stability as well as regular dividend income and potential capital appreciation. The REIT market in Saudi Arabia will provide a wider range of investors exposure to the commercial real estate market, a sector that is typically illiquid and has large minimum entry requirements.

We welcome the establishment of the recent REIT regulations as another step toward a more transparent market, a key factor when it comes to institutionalizing the sector and attracting international capital. Over the longer term, REITs are expected to increase private sector participation in the financing of the real estate market. This appears to bode well with a real need for investing capital in the kingdom’s real estate market and falls in line with the broader goals of the Saudi Vision 2030 and the National Transformation Plan (NTP) which aim to stimulate the real estate sector and increase its contribution to overall GDP, while encouraging private sector participation in this process.

There are number of external factors that may challenge the growth of the REIT market in Saudi Arabia. A major factor will be the quality and supply of suitable assets that can be placed within potential REIT structures. As the success of the REIT market will, in part, rest on a sustainable pipeline of future assets, the softening of the current economic climate could hinder the development sector and with it future supply.

Stefan Burch – Partner, Saudi Arabia – commented: ‘The recent approval of the REIT regulations signal an important step in the government’s drive to increase transparency in the real estate markets where visibility around asset performance, ownership and legislation are key to attracting capital to the sector’

This article was first published in Knight Frank

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