Residential property rents in Saudi Arabia’s main cities have increased by up to 15% in some locations in the first six months of the year.
The latest analysis report from real estate consultants CBRE explains that an increasing population and a rapid rise in per capita GDP has led to soaring rents.
There has been a 2.8% population growth and strong oil revenues in 2011 have resulted in Saudi Arabia’s per capita gross domestic product (GDP) increase by 25%.
As a result, residential rental rates for villas in Riyadh increased by around 10% in the first half of 2012 and apartment rents were up around 15% in the same period.
In Jeddah, demand for low cost housing saw the government launch the Saudi Pension Fund, which plans to develop 10,000 units in the northern district. However, it is unclear as to when the project will be completed and contractors have yet to be appointed, CBRE said.
Away from these plans, average villa prices rose by around 10% in Jeddah during the first six months of 2012, although CBRE said the southern part of the city experienced lower growth rates.
By contrast, a surge in supply has dented the commercial office market in the two main cities, but landlords are still reluctant to offer incentives or rental decreases.
In Riyadh, there is approximately three million square metres of office space in all categories, while the mega King Abdullah Financial District (KAFD) will alone add approximately 1.2 million square metres of prime office space to the market.
While vacancy rates are currently at around 15%, CBRE said the sheer volume of new quality space due to enter the market at KAFD alone seems likely to overwhelm this category in supply terms.
Over 800,000 square metres of quality office space due to enter the Riyadh office market in the next two years, but landlords have not fully embraced the concept of incentives or rent reductions, and it may well be that those properties that do not secure tenants in the short term will struggle over the medium term, the CBRE report says.
As a consequence, rental rates in Jeddah and Riyadh have declined by around 11% in the first half of 2012.
Meanwhile, the latest report from the National Bank of Kuwait shows that property sales increased by 18% in June compared to the previous month led by the residential property sector.
Real estate sales in June totalled KD266 million ($942 million), almost unchanged from June 2011 but up 18% month on month.
Residential sector sales totalled KD148 million, an increase of KD34 million compared to June 2011 on the back of an increased number of transactions.
Ahmadi governorate saw the highest number of transactions for plots of land, the report said, adding that Hawalli governorate saw the most activity for home transactions.
The NBK report said that the investment sector saw KD113.1 million in sales during June, down KD22 million compared to a year earlier while the commercial sector saw just KD5.3 million in sales, a drop of KD8.5 million compared to the same month of last year with two out of three transactions taking place in Kuwait City.
The report added that the Savings and Credit Bank (SCB) approved almost KD10 million in loans at an average of about KD63,000 for each successful application.