Khalid Shaker Al-Mubayyad
This question may be the dominant theme these days across all segments and sectors of society, as there has been much talk of an imminent collapse in real estate prices in the Saudi market. Some local newspaper columnists have reinforced these expectations, and many have begun to take this hypothesis seriously; in fact, whenever I meet someone, they ask me when real estate prices will crash, and I jokingly reply, “Tomorrow at 12:22 p.m. Makkah time.”
Dear reader, as someone interested in the real estate sector with prior experience in previous price corrections in the real estate market, such rumors and speculation do not influence my view of the market. I always strive to be realistic in my analysis of events, as thereal estate market involves many fundamental factors that generally determine the likelihood of a corrective movement in property prices. The real estate market is not like the stock market, which collapses quickly and easily and reacts to expectations and rumors—whether negative or positive. It is a massive and non-that cannot be controlled by any individual or group. Furthermore, real estate is a commodity that cannot be easily liquidated, as is the case in stock markets. Yes, dear reader, we all hope that real estate prices will fall so that people from all segments of society can afford to buy property. However, we must also be logical and realistic, since—based on experience—a decline in the Saudi real estate market is not immediate or sudden, as some claim. Even if there were a decline, it would be preceded by a stagnation lasting several years—perhaps as long as three or four—followed by a price correction of no more than 20 % or slightly more. This correction would also be gradual and not sudden, and I attribute this to the following reasons :
• The majority of property owners are Saudi nationals—that is, they are not foreigners—and therefore their attachment to their properties is strong
• The majority of properties are not mortgaged to banks; statistics confirm that properties mortgaged to banks account for no more than 5 % of the total real estate market, which stands at 1,5 trillion riyals; this is a low percentage, and therefore, if mortgaged properties were liquidated for any reason, it would not have a significant impact on the market
• Supply of real estate units remains far below demand, which reinforces the hypothesis that prices will remain stable
• The adoption of a mortgage system will have a psychological effect, discouraging property owners from rushing to sell their properties.
Dear reader, I personally hope that real estate prices will fall, but hope alone is not enough to make that happen. What I expect, God willing, is that prices for most properties will not rise any further, and that the coming years will see real estate prices stabilize, God willing. I also expect to see a number of real estate projects that will provide affordable housing for low-income individuals in all regions of the Kingdom.
