Since the beginning of the year, over the past ten months, the Saudi real estate sector has recorded a decline in the total value of transactions of more than 27.4 percent, with the total value of real estate transactions settling at $44 billion, compared to approximately $60 billion for the same period last year. Real estate indicators show a decline in all activities without exception, though the rates of decline vary. However, this decline is an extension of market trends over the past three years, during which the market began to move in the opposite direction, resulting in a consecutive decline in both the value and number of transactions.
The Impact of New Regulations on the Market
Land fees have cast a shadow over the overall real estate landscape in terms of value, supply, and demand, driven by a decline in demand for commercial properties—which have maintained solid levels—compared to the residential sector, where activity fluctuates periodically. Furthermore, the Ministry of Housing has played a major role in steering the market in the right direction by enforcing regulatory legislation and acting as a nonprofit developer through the “Sakani” program, which has remained consistent in its deliveries.
Real estate experts note that the value of transactions has been declining annually since 2014—which is considered the strongest year on record—especially in the last decade. While talk of a decline in transaction values is not new, but rather is increasing year by year as the market awaits an appropriate price drop following the wave of inflation that hit the market in recent years, which has gradually begun to subside, This is clearly evident in the periodic table of prices for regions and cities across all real estate sectors, particularly land, which has been significantly affected.
Start of Land Fee Payments
In this regard, Saleh Al-Ghanam, General Manager of Al-Ghanam Real Estate Development Company, explained that the market is witnessing a noticeable decline in prices in line with demand for reasonable and attractive levels, especially since the market has effectively begun paying land fees—a decision that is currently generating significant momentum in the market and temporarily affecting prices, as evidenced by the sale of large quantities of land in the recent period. However, what distinguishes this quarter is a noticeable decline in value, noting that what is happening now is merely a correction of the real estate market, the signs of which are beginning to become clear.
The figures indicate that the total number of real estate transactions during the first ten months of 2017 decreased slightly—by no more than 0.8 percent—compared to the same period last year (the number of residential transactions rose by 0.7 percent, while the number of commercial transactions fell by 9.7 percent), and the number of properties sold during the same period fell by 2.9 percent compared to the same period last year (a 1 percent decline in residential properties and a 13 percent decline in commercial properties).
A 27% loss in transaction value
Real estate investor Mishaal Al-Ghamdi noted that the market has lost more than 27 percent over 10 months compared to the same period last year, a significant drop that requires greater support in the form of an appropriate price reduction. Although the government is seeking to stabilize prices and restore them to previous levels by enacting legislation to that effect, the missing link is the rise in real estate prices to extremely high levels, which reflects the current state of the market—which is experiencing its worst conditions in many years due to a lack of liquidity among buyers, particularly in the housing sector, which is facing difficult times amid uncertainty, as it awaits the outcome of the new fees in the form of a genuine decline in prices, thereby making purchases feasible. Furthermore, the real problem lies in the gap between the buyer’s ability to pay and the seller’s asking price, an issue the government is attempting to resolve through various means.
