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Affordable housing key driver of sustainable growth in Riyadh
By Saudi Gazette Staff
Published in The Saudi Gazette on 09 - 06 - 2009

According to a Riyadh City Profile prepared by Jones Lang LaSalle, the world's leading real estate investment and advisory firm, the capital's real estate market is much more stable than in other GCC cities and offers big opportunities subject to the successful combination of several key factors namely: home finance, regulation, investors, builders and affordability.
The Riyadh City Profile is being issued to coincide with Cityscape Saudi Arabia, which takes place in Jeddah this month.
“Since we opened our first offices in Riyadh and Jeddah we have been able to study the Kingdom's real estate market in-depth at firsthand and are pleased to publish our findings in our three-part series,” said John Harris, Head of KSA operations for Jones Lang LaSalle. “First out, the Riyadh City Profile presents an objective analysis and comes to an optimistic conclusion that solutions to the main factors challenging all sectors are underway and that, with strong government support, the real estate market is stabilizing and all set for robust growth.”
The reports analyses the challenges and assesses the opportunities in the Kingdom's real estate markets. It indicates that all sectors are either approaching or have passed their cyclical peaks over the past six months, noting that minimal price and rent increases have been recorded and prices and values are declining in many sectors along with a continued correction in the price of land.
According to the report, the office market in Riyadh is booming with 1.1 million sqm of office space expected to be delivered during the years 2009-2014, while demand has been further boosted by the announcement that the Central Bank for the GCC Monetary Union will be housed in the King Abdullah Financial District in Riyadh.
On the other hand, demand from overseas companies has been subdued over the last six months, but as opportunities for foreign businesses increase in Saudi Arabia, a return to the market by the multinational corporate sector is expected in 2010. Rent levels are expected to increase again in 2010 but might come under pressure in 2013 when the big new projects like the Financial District and the ITCC start to hit the market.
Riyadh is already the biggest city in the GCC. Among favorable aspects for the real estate market, continuous population increase fuelled by family growth and inward migration of expatriates, Riyadh is necessitating ever more residential accommodation, accompanied by a rise in demand for hotels and commercial properties. At the same time, continuous investment in infrastructure projects has supported long-term growth of the city and currently, the government is making major investment in new ring roads, schools, hospitals, increased electricity and water capacity.
Looking at the residential real estate market, the profile considers the main challenge facing the Riyadh market is how to provide for the increasing shortfall in affordable housing. Currently there are less than 3,000 completed housing units available and only 4,000 serviced plots ready for construction by families.
The report noted that the demand for housing in Saudi Arabia has been relatively unaffected by the global credit crunch and points out that a number of new real estate investment funds are being created to develop residential property in Riyadh in partnership with local landowners, constituting an early indicator of possible increase in the supply of housing.
The major remaining questions are the relatively small number of experienced house builders in the local market and continued uncertainty over the confirmation of the mortgage laws, although these are considered to be well drafted and are expected to boost the residential market.
Turning to the retail sector, the report observes that the market is experiencing a difficult time. Indicators of private consumption show that retail spending growth has been modest in late 2008 and into 2009. Growth in point-of-sale transactions (by value) slowed to 13 percent in February, down from 34 percent in the same month of 2008. Import demand has also softened, with the value of new letters of credit (LCs) opened in February being 40 percent lower than a year earlier.
The demand for both capital and consumer goods has waned with new LCs for cars down by 25 percent and for building materials down by 39 percent.
For retail showroom space, while headline rents are holding up, effective rents are falling as operators demand concessions and rent free periods for those locations where footfall does not meet their expectations. In addition, indicators show that retail stock will increase but not as dramatically as over the last five years, with consolidation amongst malls and operators underway with definite winners and losers.
Hospitality sector has been going through strong growth in recent years and occupancy rates for Riyadh hotels peaked at 74 percent in 2007 before subsiding in 2008 and beginning of 2009 due to the financial turmoil.
There are several new hotels under construction in Riyadh, with much of the supply planned to enter the market in 2011. In the meantime, demand for hotel rooms in Riyadh should continue to increase, as is indicated by a noticeable increase in business activity in Riyadh in 2009 with events and conferences playing a key role backed by the government's clear objectives of consolidating the capital city as a major business and financial hub.
Abdollah Al-Faadhel, Business Development director at Jones Lang LaSalle KSA, said: “Our local presence and knowledge coupled with vast international experience give us unique insight into the Kingdom's real estate market.” __


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