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4 Factors behind the Stability of Real Estate Prices in Saudi Arabia

The decline in demand reflected negatively on real estate developers.
The decline in demand reflected negatively on real estate developers.
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4 Factors behind the Stability of Real Estate Prices in Saudi Arabia

The decline in demand reflected negatively on real estate developers.
The decline in demand reflected negatively on real estate developers.

Real estate is one of the vital sectors that have a strategic impact on the Saudi economy. With its major transformation and its new incentives aimed at attracting nationals and foreigners, the sector’s contribution to the GDP increased significantly to reach 12.8 percent in the first quarter of 2023, according to figures published by the Real Estate Authority.

Despite the successive rise in US interest rates, which reached record levels in 22 years, the real estate price index in Saudi Arabia slightly increased in the second quarter, not exceeding 0.8 percent on an annual basis.

In comments to Asharq Al-Awsat, real estate expert Eng. Ahmed Al-Fageeh attributed the stability of the real estate market to four factors: the record and continuous rise in interest rates, the decrease in the number of real estate deals, the drop of housing finance contracts, and the amendment of housing support for citizens, which is one of the most important solutions provided by the Ministry of Housing in order to provide assistance to beneficiaries.

As of the second quarter of 2023, the sales of villas and apartments started to rise again, Al-Fageeh noted, saying that the value of villa sales in the last three months of May, June and July increased by 22 percent, reaching SAR 6.6 billion compared to SAR 5.4 billion in 2022.

He explained that these figures indicated that the real estate market overcame the impact of high interests and other factors, and highlighted the existence of independent purchasing power in the real estate market.

Regarding appropriate solutions to reduce the cost of residential real estate for citizens, Al-Fageeh underlined the need to provide real estate developers with residential plots and lands, as well as financing, in partnership with the Ministry of Housing and based on a specific national program, thus helping bring in a large number of housing units into the real estate market and raising the supply.

Consultant and real estate expert Al-Aboudi bin Abdullah told Asharq Al-Awsat that the record increase in interest rates over the last period caused a general stagnation in real estate prices.

He added that the latest report by the General Authority for Statistics on the consumer price index during June 2023 showed an increase in the monthly inflation index for real estate prices by 0.8 percent, which is relatively low, unlike the results of previous quarters, which reached 20 percent.

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China Launches Late Stimulus Push to Meet 2024 Growth Target

FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo
FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo
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China Launches Late Stimulus Push to Meet 2024 Growth Target

FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo
FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo

China's central bank on Friday lowered interest rates and injected liquidity into the banking system as Beijing assembled a last-ditch stimulus assault to pull economic growth back towards this year's roughly 5% target, Reuters reported.
More fiscal measures are expected to be announced before China's week-long holidays starting on Oct. 1, after a meeting of the Communist Party's top leaders showed an increased sense of urgency about mounting economic headwinds.
On the heels of the Politburo huddle, China plans to issue special sovereign bonds worth about 2 trillion yuan ($284.43 billion) this year as part of fresh fiscal stimulus, two sources with knowledge of the matter have told Reuters.
Capital Economics chief Asia Economist Mark Williams estimates the package "would lift annual output by 0.4% relative to what it would otherwise have been."
"It's late in the year, but a new package of this size that was implemented soon should be enough to deliver growth in line with the 'around 5%' target," he said.
Chinese stocks are on track for the best week since 2008 on stimulus expectations.
The world's second-largest economy faces strong deflationary pressures due to a sharp property market downturn and frail consumer confidence, which have exposed its over-reliance on exports in an increasingly tense global trade environment.
A wide range of economic data in recent months has missed forecasts, raising concerns among economists that the growth target was at risk and that a longer-term structural slowdown could be in play.
On Friday, data showed industrial profits swinging back to a sharp contraction in August.
"We believe the persistent growth weakness has hit policymakers' pain threshold," Goldman Sachs analysts said in a note.
As flagged on Tuesday by Governor Pan Gongsheng, the People's Bank of China on Friday trimmed the amount of cash that banks must hold as reserves, known as the reserve requirement ratio (RRR), by 50 basis points, the second such reduction this year.
The move is expected to release 1 trillion yuan ($142.5 billion) in liquidity into the banking system and was accompanied by a cut in the benchmark interest rate on seven-day reverse repurchase agreements by 20 bps to 1.50%. The cuts take effect on Friday and Pan, in rare forward-looking remarks, left the door open to another RRR reduction later this year.

Given weak credit demand from households and businesses, investors are more focused on the fiscal measures that are widely expected to be announced in coming days.
Reuters reported on Thursday that 1 trillion yuan due to be raised via special bonds will be used to increase subsidies for a consumer goods replacement program and for the upgrade of large-scale business equipment.
They will also be used to provide a monthly allowance of about 800 yuan, or $114, per child to all households with two or more children, excluding the first child.
China aims to raise another 1 trillion yuan via a separate special sovereign debt issuance to help local governments tackle their debt problems.
Bloomberg News reported on Thursday that China is also considering the injection up to 1 trillion yuan of capital into its biggest state banks.
Most of China's fiscal stimulus still goes into investment, but returns are dwindling and the spending has saddled local governments with $13 trillion in debt.
The looming fiscal measures would mark a slight shift towards stimulating consumption, a direction Beijing has said for more than a decade that it wants to take but has made little progress on.
China's household spending is less than 40% of annual economic output, some 20 percentage points below the global average. Investment, by comparison, is 20 points above but has been fueling much more debt than growth.
The politburo also pledged to stabilize the troubled real estate market, saying the government should expand a white list of housing projects that can receive further financing and revitalize idle land.
The September meeting is not usually a forum for discussing the economy, which suggests growing anxiety among officials.
"The 'shock and awe' strategy could be meant to jumpstart the markets and boost confidence," Nomura analysts said in a note.
"But eventually it is still necessary for Beijing to introduce well thought policies to address many of the deep-rooted problems, particularly regarding how to stabilize the property sector."