The April 2 to April 27 survey was conducted as Saudi authorities chart out a plan to implement a royal order announced in March to build 500,000 new homes without delay using SR250 billion in funds allocated by the government. Our estimates show the Saudi housing market needs 1.65 million new units by 2015, or 275,000 new units per year, to meet demands of a population that has doubled in size since 1988 and continues to grow more than 2 percent per year.
Youth below the age of 30 accounted for almost 60 percent of the Saudi population in 2009 and this group of potential new homebuyers is poised to keep the pressure on Saudi real estate prices. Aside from villas, the going rates for large apartments also gained moderately in H1, particularly in north and east districts of Riyadh, according to the survey, which draws on real estate price data collected on six Saudi cities: Riyadh, Jeddah, Dammam, Alkhobar, Dhahran and Makkah.
The BSF Real Estate Survey is conducted twice a year to gauge trends in the kingdom's real estate market. Property asking prices were collected from 37 real estate companies and agencies across Saudi Arabia. Given the lack of reliable data on the Saudi property sector, these data should be taken as an indication of the direction and level of asking prices, understanding that great discrepancies exist even within neighborhoods.
Agencies were requested to provide average asking prices for apartments of 120-135 square meters (sq m) (1,292 sq ft-1,453 sq ft) and 135-190 sq m (1,453 sq ft-2045 sq ft) in size, as well as smaller villas spanning 300-400 sq m (3,229 sq ft-4,306 sq ft) and larger villas of 400-700 sq m (4,306 sq ft-7,535 sq ft). Respondents were further asked to give average advertised prices for empty residential and commercial plots of land per sq m (10.8 sq ft) by neighborhood. BSF also gathered data on average office rents charged per sq m, rental rates for apartments and villas, and building material prices. A full breakdown of the survey's findings is available in Appendix 1-5 at the end of the report.
Saudi families tend to prefer living in villas than in apartments, but affording detached homes has become extremely prohibitive. As a result of this, smaller-sized villas (300-400 sq m) and larger apartments (135- 190 sq m) are the most sought after units for sale in Saudi Arabia's real estate sector at the moment. These preferences have guided price trends across the country.
In the 12 Saudi districts surveyed by the index, the median asking price of a small villa soared 20.5 percent compared with H2, 2010 to SR1.28 million, with some substantial price discrepancies based on the neighborhood. The sharpest increases in H1 occurred in upscale neighborhoods of north and east Riyadh and north Jeddah, in addition to Alkhobar, the most-expensive city in the Eastern Province. Larger villa (400-700 sq m) asking prices also gained by a median 13.2 percent to SR2.03 million.
Countrywide, the rise in apartment prices was more subdued in H1: Median asking prices for large apartments rose 4.6 percent to SR508.33 billion. Smaller apartments (120-135 sq m) increased in price by a median 1.7 percent compared with H2. The promise of a string of new, state-financed housing projects could lead some Saudis to put off plans to buy homes for a year or two in anticipation that prices may stabilize or fall once new supply enters the market.
It has become considerably more expensive to own a villa in Riyadh in the past year. The average asking price of smaller villas in the 31 high-end neighborhoods of north Riyadh has risen by as much as a massive 59.4 percent since H1, 2010 in area C, which includes Al-Sahafa, Al-Ageeg and six other districts. The average price of a North Riyadh villa in this area stood at SR1.7 million compared with SR1.07 million in H1, 2010, and 13.3 percent higher than H2.
Even after these gains, Area C is still the least-expensive part of North Riyadh, where the average asking price of villas in area A, including such districts as Al-Nakheel and Khozama, is SR1.93 million. That is up 37.3 percent in the past year and the most expensive rate in Riyadh, second only to north Jeddah for the priciest villas in the country.
The Saudi capital is home to around a quarter of the Saudi population and serves as the Kingdom's financial and business capital. Gauging real estate price shifts in Riyadh is therefore a crucial benchmark for assessing the dynamics and health of the country's property sector. The average small villa cost SR1.34 million in Riyadh in H1, up 11.5 percent from H2, while large villas (400-700 sq m) rose in price by an average 8 percent to SR1.83 million, data show.
Apart from the north, East Riyadh, where accommodation costs are more expensive than the south and west, posted the biggest jump in villa prices across Saudi Arabia since H2. Small villa prices rose 30 percent to an average advertised rate of SR1.24 million in the east's 11 neighborhoods, including Al-Andalos and Al-Manar. Large villa asking prices were up 17.2 percent to SR1.97 million. By comparison, small villas cost an average of SR725,000 and SR695,000 in west and south Riyadh, respectively, both marking more moderate gains of around 9 percent on the year.
The appeal of East Riyadh stems from the fact that its neighborhoods offer good quality at a lower price than the north. Affordability is a key challenge for the Kingdom as the vast majority of the population does not earn enough to afford costly detached units.
Apartment prices were more restrained in the capital. Large apartments (135-190 sq m) climbed an average of 3.8 percent in Riyadh to SR560,833 compared with H2, while their cost was up 7.5 percent from a year ago. East Riyadh, again, showed the steepest rise, with apartment prices there climbing 15.1 percent from H1, 2010 to SR502,667 on average. The cost of a large apartment varies from as low as SR380,000 in south Riyadh to almost double that in parts of the north. Smaller apartment (120-135 sq m) prices in Riyadh were up 1.6 percent from H2 at an average SR428,334, the survey showed.
The slower momentum in apartment prices reflects citizens' preferences for villas. A demographic survey conducted in 2007 showed that only one-third of Saudis living in apartments own their flats, compared with ownership ratios of 85 percent for villas.
Small villa prices in Jeddah, which had fallen on the heels of mass floods at the end of 2009, have returned to 2008 levels, but apartments are still slightly cheaper than they were two years ago. Property price rises were not as marked in H1 in Jeddah as they were in Riyadh.
Real estate in Jeddah, located on the coast of the Red Sea in Western Saudi Arabia, is among the most-costly in the country. As the second-largest Saudi city, Jeddah hosts the Kingdom's main port, acts as an important commercial center and, due to its proximity to the holy cities of Makkah and Madinah, as a gateway for religious tourism.
The average price rise of a smaller Jeddah villa (300-400 sq m) was 6 percent in H1 from H2, 2010 to SR1.71 million. Villas in upscale north Jeddah are the most expensive in the country, averaging SR2.63 million in H1, up nearly 11 percent year on year. Large villas in the same area cost an average of SR3.6 million, up 3.9 percent on the year, the data show. Elsewhere in Jeddah, going rates for large villas in the south jumped 14.9 percent in H1 compared with the previous period to SR1.28 million, while smaller villas cost SR916,667 there, reflecting a more modest 1.9 percent gain. Small villas in central Jeddah, which had shed the most value after the floods, have risen 21.5 percent in the past year to an average SR1.6 million.
Average Jeddah apartment prices also gained moderately, reaching SR783,333 for a large apartment in the north - the highest price in the Kingdom, marking a rise of 1.7 percent from H2. On average for the city, apartment prices were up 1.5 percent from H2 to SR622,778. Smaller Jeddah apartments rose an average of 2.1 percent in all districts from H2 to SR501,111, also the most expensive in the country.
The gap between house prices in Alkhobar and neighboring Dammam and Dhahran in the Eastern Province widened in H1 as the former saw sharp rises in advertised villa and apartment prices. Smaller villas in Alkhobar, the province's commercial hub, rose 12.8 percent from H2 levels to an average asking price of SR1.33 million, while larger villas advanced in price by 15.4 percent to SR2.19 million. By contrast, in Dhahran, headquarters of oil giant Saudi Aramco, villa prices fell 1.3 percent for smaller villas to SR758,333 and rose 6.7 percent to SR1.07 million for larger villas, on average.
Dammam, the largest town in the eastern region and home to a key port situated close to major oil terminals, is also the province's cheapest site for real estate. A small villa in Dammam cost SR744,167 on average in H1, up 7.3 percent from H2. Large villas are 61 percent cheaper than they are in Alkhobar at an average SR863,333, unchanged from H2.
Going rates for apartments in the Eastern Province were more muted. The average advertised rate for large apartments climbed 2.1 percent to SR331,389, while smaller apartments were up 1.8 percent to an average SR236,944.
Land prices in Saudi Arabia are on the rise again, posting gains across the board, with particularly sharp rises in higher-income neighborhoods. Plots of residential land are now more expensive than they were in H2, 2008. As a result of the economic slowdown that followed the global financial crisis, the median price of a plot of residential land in Saudi Arabia fell almost 10 percent by the first quarter of last year. Since then, demand has picked up and the median price of land for home building is now SR1,631 per sq m, 13.5 percent higher than the same period last year and up 4.8 percent from H2.
Jeddah and Alkhobar land prices most supported this rise, the average asking prices for land in these cities advancing 18.3 percent and 20.2 percent, respectively, from a year ago.
Alkhobar is home to the priciest land in Saudi Arabia. In the district going by the name "High Rise", including beachfront plots situated next to the causeway to Bahrain, land costs SR3,933 per sq m, up 7.3 percent from last year and the most expensive price for Saudi residential land. Seven of the 10 most-expensive residential neighborhoods measured by the survey, meanwhile, were in Jeddah in H1; land prices surpassed SR3,000 per sq m in all cases. It is important to note that data for Makkah excludes the prime real estate plots immediately surrounding the Kaaba.
Along with Jeddah, Eastern Province land prices are in many cases higher than in the capital Riyadh. The average cost of land was SR2,800 per sq m in Jeddah in H1, followed by SR2,600 in Alkhobar, SR1,667 in Dhahran, SR1,596 in Dammam, SR1,233 in Riyadh and SR558 in Makkah.
Still, Riyadh land prices have risen quickly in many neighborhoods, particularly more-expensive districts. For instance, north Riyadh - where villa prices have soared - also saw land prices jump by an average 29.3 percent from a year ago, and 7.2 percent from H2, to SR2,239 per sq m. On an annual basis, east Riyadh land prices were up an average of 14.3 percent, while those in the south climbed 10.8 percent and in the south 7.5 percent. Makkah land prices gained more slowly in H1, rising 4.7 percent from H2 levels on average.
Prices may be on the rise, but transactions for land are trending sharply downward, the survey showed. The value of land transactions in Riyadh fell 35.6 percent in March compared with the year earlier. In Dammam, the value of transactions was down 47 percent, data of the Ministry of Justice show. In the six months to April, SR27.3 billion worth of land transactions took place in Riyadh, down almost 43 percent from the same period a year earlier. Land transactions decreased a sharp 30.6 percent in Dammam over the same stretch.
Commercial land plot prices are also climbing in Saudi Arabia, although over all they remain notably lower than they were in 2008. Business activity and private sector expansion have taken turns for the better in the Kingdom, and this has led commercial land prices to start strengthening after the median price fell almost 17 percent between H2, 2008 and H1 2010. The advertised rates of commercial land are up by an average 2.7 percent in H1 compared with H2, 2010, and almost 5 percent higher than a year ago, the survey showed.
In Riyadh, the asking price for prime commercial land situated on roads 40-60 m wide rose by a median 3.9 percent in H1 compared with H2 to SR4,417 per sq m. Land costs had fallen 19 percent in Riyadh between H2, 2008 and H1 2010, along with the general decline in economic activity. The median price in Riyadh is still 12 percent below 2008 levels.
The cost of land nonetheless gained quite quickly in a handful of Riyadh neighborhoods. Qortoba in the east, for instance, saw prices rise 10 percent from H2 levels, while the cost of land in Al-Shifa in the south advanced almost 14 percent over the same period. Prices climbed 11 percent in the north Riyadh C district.
Outside of Riyadh, commercial plot prices did not witness double-digit gains in any neighborhood. Prime plots in some posh Jeddah districts - such as the Corniche and Prince Sultan Rd. - rose more than 5 percent from H2 levels, but they remain cheaper than 2008-2009 levels. The average cost for commercial land in Jeddah of SR5,067 per sq m is almost 15% above Riyadh levels. The five most-expensive neighborhoods for commercial land were in Jeddah, with prices ranging as high as SR22,583 per sq m on the Corniche.
Land prices vary greatly in Makkah, where there are a lot of rundown neighborhoods adjacent to grand new developments surrounding the Holy Mosque, site of the Kaaba. Land within the immediate radius of Islam's holiest site would easily stretch above SR50,000 per sq m. This territory is not included in the survey.
The cost of commercial land per sq m ranges from SR708 per sq m in south Makkah to a high of SR6,833 in the east Makkah district of Batha Quraish, making it the sixth most-expensive district measured by the survey. Prices there are still about 15 percent below peak levels in late 2008-early 2009, although they have steadily risen in the past year. Batha Quraish is situated close to the entrance of the territory enclosing the Kaaba.
Eastern Province land prices for commercial purposes climbed most in Dhahran, where the median price was up almost 4 percent from H2, although still 12 percent below levels from two years ago. In Alkhobar and Dammam, land prices edged higher after falling consistently in each survey conducted since the second half of 2008. Alkhobar land prices, up 2 percent from a year ago, are still down almost 17 percent from peak levels.
Mounting rents for apartments and villas have been a principal thrust behind Saudi inflation in recent years, and the H1 survey showed leasing rates continued to climb in most neighborhoods. Rent inflation as measured by the Central Department of Statistics has held at or near double-digit levels since mid-2007. Many young families have been unable to afford to buy their homes, opting to rent instead, while a large proportion of expatriates, who account for almost a third of the population, prefer to lease their homes partly due to limited buying opportunities.
Consistent with mounting sale prices, rents on villas rose much more quickly than apartments in H1. High-demand smaller villas (300-400 sq m) leased for a country-wide median price of SR52,875, up 5 percent from H2 and almost 15 percent from a year ago. Jeddah villa rents rose most rapidly by a median 10.9 percent from H2 to SR80,000, while in Riyadh the median price climbed 7.7 percent to SR56,375.
In Riyadh's North C district, rental rates for small villas have soared almost 32% in the past year - the sharpest rise in the country - to SR61,083. Rents are most expensive in North Jeddah, where an equivalent villa costs SR113,333, on average, per year, up 14.5 percent from a year ago.
Landlords typically extend rental contracts of between one and three years. Tenants, as a result, may experience the pull of rental inflation only every few years. Leasing rates for large apartments (135-190 sq m), meanwhile, went up most in Alkhobar, climbing 7.6 percent compared with H2 to an average SR29,417. Country-wide, the median rent for an equivalent flat climbed a moderate 0.9 percent over the same period to SR32,459. Rates increased modestly in all Riyadh neighborhoods except the east, where they fell 6.2 percent.
Reflecting the continued improvement in the business climate, office rents rose across the board in H1. The median office rental per sq m was SR387 in Saudi Arabia in H1, up 8.1 percent from H2 - yet still down a substantial 21 percent from H2, 2008 levels. Up to the second half of last year, leasing rates for office space were falling rapidly as private sector growth stagnated following the onset of the global financial crisis.
Average H1 prices varied across the Kingdom from a low of SR305 per sq m in Dammam to a high of SR757 per sq m in North Jeddah. Alkhobar office rents showed the sharpest rise in H1 of 10.6 percent. Rents in that Eastern Province city had fallen the most following the financial crisis. The median rate of an Eastern Province office is still 20% below peak 2008 levels, compared with smaller discrepancies of 8.4 percent in Riyadh and 1.5 percent in Jeddah.
The mismatch between supply and demand, particularly for smaller villas, will be a key challenge for state and private sector investors to address in the coming years. Saudi Arabia's real estate market benefits from a consistent flow of indigenous demand that is poised to swell due to the young demographic. Focusing on affordability will be crucial. Since many Saudis earn less than SR8,000 a month, prevailing property prices are beyond their range of affordability.
The government has tackled this drawback through state-held Real Estate Development Fund (REDF), which provides non-interest-bearing home loans for citizens and currently accounts for about 81 percent of total home financing. The government injected SR40 billion into REDF this year in order to reduce the waiting period for loans and enable the body to offer maximum credit per customer of SR500,000, up from SR300,000 previously.
Bank lending for home purchases has also picked up pace in the past two years. Outstanding fourth-quarter 2010 real estate loans among Saudi banks stood at SR23.1 billion, up almost 30 percent from a year earlier. New minimum wage requirements in the public sector, furthermore, could potentially expand the homebuyer pool by giving a lift to wages in other brackets, and possibly compelling the private sector to do the same.
The country's long-awaited mortgage law should be implemented in the medium term, which would open the door for greater home ownership if accompanied with attractive interest rate and tenure terms by banks. The benefits ushered in by the law's eventual passage are most likely to be felt over the longer term, however.
In the meantime, many homebuyers remain in a quandary. The SR1.28-million price tag for a small villa, the median country-wide price in H1, is too high for most young people to entertain the thought of buying a detached home. We expect some younger families will modify their expectations, choosing instead to buy larger apartments. The size of families in urban areas is getting smaller so it will be feasible for many young people to accommodate their needs in apartments rather than villas. Paying an average SR518,958 for a large apartment will fall within the band of affordability for many more Saudi citizens, particularly as the wage equilibrium improves in the coming years.
While property prices are poised to continue climbing in the short- to medium-term, the prospect of an onslaught of new units being added to the market is likely to lead many Saudis to put off plans to buy properties for a year or two in anticipation that prices would stabilize or fall. Evidence of this is already apparent in rents, which witnessed some sharp gains, particularly in neighborhoods where villa sale prices have soared in the past year.
Findings of the H2 BSF Real Estate Survey confirmed that confidence in the Kingdom's property sector continues to build, with prices for apartments, villas and land climbing across the six cities surveyed. Yet, a marked decline in the value of land transactions once again highlights the need for the government to consider providing residential land, supplemented with basic services and facilities, at more reasonable rates in the major urban centers. Reducing the cost of land would relieve an enormous burden from construction costs. Also on the regulatory front, the government's move toward enabling to developers to sell units while real estate is still under construction, known as off-plan sales, should encourage greater private sector participation in the Kingdom's real estate market.
