RIYADH – Amid massive demand for housing in Saudi Arabia among both Saudi nationals and expatriates, villa prices, compound occupancy and rental rates have continued the upward trajectory in the first half of 2012, property expert CBRE said Monday in its review on Saudi residential markets. Rental rate increases for villas in Riyadh have been significant over the first half of 2012 at around 10 percent per annum, but these have lagged the rental rate increases for apartments for which there is very strong demand due to the largely price-sensitive nature of the majority of the market. Rental rates for apartments have risen by a rate closer to 15 percent per annum, although this naturally has varied by type, pricing and location, with the greatest increases being experienced in northern districts. Compound occupancy and rental rates have also been strong as employment opportunities have been created for middle and upper-income expatriates and increases in supply have lagged behind the rapid increase in demand. Inevitably, this surge in compound performance has led to a significant increase in construction activity in the compound sector and it remains to be seen how the balance between demand and supply will play out. In Jeddah, average villa prices have risen by a rate of around 10 percent per annum in all northern and western parts over the first half of 2012, although price increases have been less significant in the lower-income southern areas of Jeddah. Apartment prices are reported to have risen across most areas of Jeddah but this is mostly a response to land price pressures rather than strong levels of demand. Consistent with all other areas of Saudi Arabia, apartment purchases are not preferred by Saudi nationals. An example of the lack of demand for primary home apartment purchase can be demonstrated at the Jeddah Gate project where only 160 apartments out of the 273 available in the first phase of the development have been sold - after four years of marketing, the report said. Improved road connections and infrastructure also opened up new areas for residential accommodation, particularly those areas where land is less expensive than the more central areas targeted by land price speculators, the report added. CBRE pointed out that apartment sales continued to be weak in overall terms with some well-documented failures in this sector, although apartments can relatively easily be rented out due to the intensity of the need for accommodation. "If developers have the ability to respond to these market conditions by renting out unsold apartments, they are able to achieve strong rental returns," the property expert said in the report. It is estimated that somewhere between 5,000 and 10,000 residential units have been completed in Jeddah in the first half although these are typically contained within small developments of 30 units or less - a similar characteristic to projects undertaken by the private sector in Riyadh, the report added. An example of the lack of demand for primary home apartment purchase can be seen at the Jeddah Gate project where only 160 apartments out of the 273 available in the first phase of the development have been sold - after four years of marketing, the industry expert said in its report. Rental rates for apartments have risen by a rate closer to 15 percent per annum, although this naturally has varied by type, pricing and location, with the greatest increases being experienced in northern districts, it added. The CBRE pointed out that housing needs remained a pressing issue in Saudi Arabia. The challenges faced by Dar Al Arkan for example, in selling price-sensitive accommodation at the Al Qasr project in Riyadh shows the contradictions between demand, the ability of Saudis to purchase housing and the mismatch between expectations and reality in terms of scale and quality. This is partly driven by the absence of a secondary housing market, which means that a Saudi national's first purchased home is likely to be the only home they ever purchase, the report stated. The issue of build quality is key with traditional building techniques and quality leaving houses virtually obsolete over a 30 year period, the expert pointed out. "Apartments are much less popular due to their limitations in terms of expansion, but also privacy, build quality, management and maintenance of common areas and a number of other core issues are central demotivators," the report noted. Land price speculation typically means that villa or townhouse projects are unable to meet the critical price constraints of the market, it further said. – SG
