Wait for prices to dip further, property buyers advised

The real estate sector in Jeddah which had witnessed abnormal increase in prices in the past five years, is now going through a correction period. This despite the fact that some realty players from Riyadh, Al-Sharqia and Qassim making all efforts to check the price slide through fake deals projecting inflated rates.
Several factors including the saturation in construction activity and government intervention have resulted in the sector moving toward a more stable plane and preventing what some experts termed as ‘real estate bubble’ that was all set to burst.
Take this scenario: Five years ago, the price of a villa was estimated at between SR 400,000 and SR 1 million. In the course of time, the price of a house in a 200 square meter plot shot up to over SR 1 million. This led to a vast gap between supply and demand since the ordinary man couldn’t afford to spend such huge amounts on acquiring property.
With the correction taking place in the real estate market, homes are now selling at a more realistic SR 500,000 or even less. Experts believe that the prices would drop further in the days to come.
“The real estate market is currently going through a period of correction after it was monopolized by a number of investors who kept prices of land and residences at levels not logical or realistic,” points out real estate researcher Abdullah Al-Maghlouth, adding that this was evident from the advertisements put up by those who want to sell their properties.
Al-Maglouth said the Housing Ministry’s intervention, the saturation that hit the market and virtual halt to buying-selling activity in most cities forced the market to accept the situation.
The massive construction activity in the Kingdom in the past five years which led to an upward swing in the supply graph was also a major contributory factor for the sector to turn to a realistic mode, the expert said, adding that citizens would do well to wait for the correction process to take complete effect, which would ensure normal and realistic prices.
Meanwhile, an official in the real estate valuation business warned against fake property deals being carried by some investment companies from Riyadh, Alsharqia and Qassim. “These fake deals are even being documented at the notary offices, but they are essentially aimed at maintaining the unrealistic prices after market forces brought down the rates,” he said.
Experts in the sector said the real estate in Jeddah was definitely seeing a downward trend because of factors like the beginning of summer vacation, government’s plans to develop affordable housing and the decision to extend lands and loans.
Others believe that the drop in prices was only a temporary phenomenon, stating that such decline in prices was normal at this time of the year. “The prices will return to what was prevailing earlier in the near future,” one expert said.
Awad Al-Dosi, deputy chairman of the Real Estate Valuation and Auctions Committee at the Jeddah Chamber of Commerce and Industry (JCCI), however, dismisses such claims, saying that several developers had also posted warnings in an account of their group at WhatsApp claiming that outsiders were trying to distort facts and ground realities.
“All parameters indicate that prices are indeed dropping, mainly because of various factors already mentioned as also the government’s eagerly awaited housing projects,” said Al-Dosi, adding that some developers with vested interest were disregarding these factors and spreading false and misleading information.
Coming down heavily on the real estate index published by the Ministry of Justice, he said: “It is only a general indicator that doesn’t project facts or happenings in the markets. The prices that the index has projected are far from reality as is indicated by the low rates at which properties are being registered at the notary office.”
Urging the ministry to monitor sale deals to ensure that they are realistic, he said high priced sales transactions by an investment company is often aimed at securing high percentage of banking finance. “This will have an effect on Saudi Banks when it comes to repayment because of the inflated prices if the project is stalled,” he said.
Waheeb Allami, a developer and legal adviser, said: “The upward or downward trend of the real estate indicator will not change the behavior of investors and developers, but will affect limited and medium income class who would like to own a property."
Muhammad bin Ashoor Al-Zahrani, chairman of Istethmar Holding Company, said the first quarter of the year always sees an increase in property deals, sometimes to 100 percent. “But the second quarter always sees a drop of 75 percent in sale deals.”