JEDDAH: According to a new report by global real estate consultancy company Jones Lang LaSalle, the demand for houses in Jeddah fell over the first six months of 2009 by at least 10 percent compared to last year’s figures. Spurring the decrease, the report said, was the large number of units that have flooded the market in response to recent demand.
“Demand has been moderate so far in 2009 and has failed to keep pace with the steady supply of homes and new office buildings entering the market. It will take some time to absorb what has just been delivered,” the report stated, adding that it could take at least two years for the market to adjust adequately to all the newly completed office space.
Nonetheless, many are certain that the lack of demand is not exactly a lack of interest but based on a shortage of personal capital needed to make such purchases.
Currently the only options available to homebuyers wishing to purchase a home is to save the needed capital over time or repurchase through a system of Murabaha, a Shariah-compliant property ownership scheme offered by local banks. However, some feel that it is an option that carries hefty fees on top of the purchase price of the home and is therefore an option some are reluctant to sign onto.
“In Saudi Arabia, especially Jeddah, we are currently experiencing a decrease in sales of homes and property due to the fact that we don’t have a mortgage system in place or other means besides banking schemes which allow families to finance payments to purchase homes,” said Mohjat A. Bin Yaquob, board member and head of the sales and marketing department at Remax Aziza in Jeddah.
She also said that those who had saved over the years and accumulated enough money to purchase a home are still waiting because of the price spike and are merely anticipating lower prices. She added that although a mortgage scheme would help many finance property purchases, Saudi Arabia is in a better position than other local markets due to their lack of planning.
However, in addition to these problems, there are other aspects putting a damper on allowing locals to purchase residential property — namely speculation. According to research done by CB Richard Ellis Group, a US-based commercial real estate services firm, the price of plots of land has been driven past their actual economic values. In Jeddah for example, land prices have risen by around 100 percent in two years. The findings also show that some areas have become “locked” and cannot be developed for profit due to housing affordability restraints.
This in turn has limited individual ownership of recently master-planned districts to just 5 percent of the total area for sale.
Following a statement made recently by the National Society for Human Rights condemning speculation and rising prices, the organization said: “Due to high prices, 60 percent of the Saudi population are unable to own their own homes.” Still other statistics put the percentages as high as 80 and say that only one out of five Saudi families actually owns their own homes.
As a result of skyrocketing prices, some reactions have led to reverse migration, which is being experienced by a number of major cities in the Kingdom.
Saudi nationals leave the urbanized central areas due to spiraling home prices beyond their means. Meanwhile massive residential construction projects continue to get under way in Jeddah and other major cities of the Kingdom, leaving unanswered the question of who will be able to afford such projects.
In an effort to combat the problem, in March the government banned the sale of off-plan properties without permission of a specialist committee due to the speculative bubble that has emerged across the region. This in turn was supposed to reduce the number of projects under way in order to allow the market to cool off and sales of current properties to rise.
The new law also bans, without Cabinet committee consent, the advertising and/or any other promotion of properties before they have had a chance to be built.
The Cabinet committee must be composed of officials from the Ministry of Commerce and Industry, Ministry of Municipal and Rural Affairs, Members of Saudi Arabian Monetary Agency, and General Commission of Housing.
“I feel that the new law is a good thing. Another positive aspect about Saudi Arabia is that investors work with their own actual money, which helps protect the market from bubble effects brought on by selling off-plan and other interest-based plans. I believe this has helped create a more stable and solid foundation for property investors,” Yaquob added.
The practice of selling off-plan or “flipping” property is widely thought to be what is behind the recent Dubai property crash.
