YEARS ago in the Kingdom standard apartments came with bathroom fittings, a kitchen sink and not much else. Many Western expatriates were astonished to discover that moving into an apartment meant bringing all the furnishings including the kitchen cupboards and air conditioners. Times have certainly changed. While some of those old “bare-wall” flats are still around, many of the upscale apartments being rented in the Eastern Province these days boast everything from fashionable Italian floor finishes to digital security systems.
“I remember that my father, Salmeen Al-Nahdi, built a villa in the 1980s which was raved over as having the most astonishing design. Now it would be considered just ordinary,” said Mubarak S. Al-Nahdi. “Back then there was no concept of interior decoration for villas, let alone rental properties.”
Al-Nahdi is the executive manager for Muhammad Al-Nahdi Real Estate Services, one of the real estate companies handling property in the highly desirable Bandariyah District located near the Alkhobar corniche.
“In the past a customer would come and request an apartment based solely on the number of rooms he preferred or total square meters,” said Al-Nahdi. “But not anymore. Most renters are very sophisticated now. They will ask about everything from the type of wall finishes to the brand of the water heaters. They know which kind of kitchen cabinets wear the best and many are interested in central air conditioning. So to get the highest return on their investment, building owners have to provide more features and keep the apartments maintained.”
Al-Nahdi went on to explain that in addition to the quality of the building and its fittings, the location of a rental property is very important in determining how profitable it will be. The Bandariyah District is the most sought after location for renters because of the nature of the area. The district has definite borders on all sides like a compound and it has a limited number of commercial establishments located on its interior streets. Consequently, the only people who enter Bandariyah are the families who live there or their guests. So the district has earned a reputation for being a very safe residential area for families. While Bandariyah itself is quiet, it is only a five- to ten-minute drive from the main shopping areas of Alkhobar and it is also only five minutes from the Arabian Gulf. After Bandariyah, the next most desirable district is Al-Johara, near the famous Al-Rashid Mall. Al-Johara used to be more popular than Bandariyah but now that many furnished apartments were built in that area, families have been looking elsewhere. For families who cannot afford the rents of Al-Johara, Alkhobar is still a prime location, followed by Dammam.
“The same apartment that will rent for SR35,000 per annum in Bandariyah, will go for SR30,000 in Al-Johara, SR25,000 in Alkhobar and SR22,000 in Dammam,” said Al-Nahdi. “People have to be careful when they purchase land to imagine what type of property owners will be attracted to that district and how the government envisions the area after eight-ten years because that’s when a real estate investment starts to pay off. Zoning is a big factor in property values. A very limited number of plots are authorized for more than three floors as an apartment building. The price for such land has gone quite high in the last decade, especially if the location is beside a commercial district.”
While the return from a building in Bandariyah may be high, its development costs will also be high. According to Al-Nahdi, because Bandariyah is known for the quality of the exterior and interior designs of its buildings, it costs more to build in the district. He stated that just a few weeks previously he had sold a 650 square meter plot in Bandariyah for SR1,100,000 or SR1,692 per square meter. Before realizing any rental income, in addition to the price of the land, the owner will have to pay at least SR1,250 per square meter for construction due to the high-quality finishing required. Land in Al-Johara or Alkhobar sells for SR1,400 to SR1,500 per square meter, and in those areas construction costs for rental property average SR850 per square meter.
Once an owner has sunk so much money into a property, he or she wants to protect the investment. That’s where real estate agents are important.
“Where do people go when they are looking for an apartment?” asked Al-Nahdi. “They visit a real estate agent. So we are the first line of defense for the property owners. They give us clear instructions on what type of renters they want to have living in their flats and we screen everyone. While renters are more selective now, property owners are very picky too. Large families and bachelors have a hard time finding apartments. A man with a professional qualification such as a doctor or an engineer, who has a small family, will get shown the best apartments. These policies aren’t fair but property owners want to have the apartment returned at the end of the lease with minimal damage. It is known that well-to-do expatriates generally won’t abuse the property and they often make improvements worth thousands of riyals.”
How much do property owners hope to gain from their investments? Al-Nahdi estimated that for a new building of ten units with good finishing which originally cost SR4 million including land and construction, the income will be around SR470,000 per annum. For an average building of ten units built at a cost of SR1,700,00 for the land and construction the annual return would be about SR185,000. Of course, maintenance and refurbishing must be deducted from those figures, so one can easily see how important it is to the owners to limit the abuse of their property.
The real estate business has one very interesting aspect that few renters realize. All real estate agencies in the Kingdom must be owned and operated by Saudi nationals. This has created challenges for both renters and property owners alike.
“My family has been involved in real estate and contracting for a long time and my father brought me into the business when I was very young,” said Al-Nahdi. “As a teenager I worked as the tea boy and janitor at my father’s office. When I was 15 my father transferred me to a school in Najran to supervise a construction project he had there. My mother was distraught but my father insisted and so there I sat month after month going to school in the morning and supervising the project and reporting back to him every afternoon. I was miserable but I learned a lot. For my advanced education I went to King Fahd University of Petroleum and Minerals and became a mechanical engineer. So I understand everything about buildings and that is a rarity in this business. This is why in addition to leasing properties, our office has begun to do building administration and we are finding it quite profitable.”
Building administration includes everything from leasing the property to maintaining it and providing all the accounting records. Al-Nahdi’s operations are fully computerized and they employ a full-time staff of maintenance specialists. They earn five percent of the property’s yearly income for small properties and work out a flat rate for large office buildings.
“One clue for renters about any property,” said Al-Nahdi with a knowing smile, “is that if the real estate agency is reputable and they are also responsible for the building’s administration, then the quality of the building’s maintenance and construction can be trusted. No real estate agent wants to be responsible for a property that has terrible plumbing or inadequate electrical work.”
What does the future hold for Saudi real estate? Well, it looks as if it’s about to go online.
“Our office is already in the process of developing a website,” said Al-Nahdi, “and in a few months renters will be able to simply go to the site and view the properties we have available. Then if they are interested they can pass by our offices. We hope it will make looking for a home easier, especially for families from outside the area. Also, we anticipate that women will be pleased with such a service because they will be able to play a more active role in selecting their family’s new home.”