Investors should be prepared for a short-term correction in Saudi Arabia’s real estate market following a surge in prices over the last few years, according to a local analyst.
Despite the correction, there remains a positive outlook in the medium to long term with a number of housing development plans in the pipeline from the Saudi government and the kingdom’s sovereign wealth fund (SWF), states Islam Albayaa, head of advisory at KPMG Al Fozan & Partners.
In November the Ministry of Housing announced the Sakani housing development project involving 19,500 residential units. Meanwhile the Public Investment Fund has been heavily involved in a number of large scale real estate projects including the Neom development, a $500 billion plan to build a futuristic city that is set to begin construction this quarter.
“These gigaprojects will promote the property market in the newly developed locations especially the second home concept in the kingdom. Moreover, some of those projects will introduce new asset classes that will increase the real estate investment alternatives,” stated Albayaa.
One reason for the expected correction is a slowdown in the number of public private partnership (PPP) deals in the last year, although a report from international law firm Hogan Lovells is forecasting a revival in the number of deals in 2019 and beyond.
“In early 2019, geopolitics will continue to dominate discussion around Saudi Arabia, but as the year goes on, the Saudi government is expected to get into fifth gear in terms of Vision 2030 [its economic reform plan], completing a number of privatisation sales and PPP projects by the end of the year,” the report said.
Meanwhile, investment from the Middle East into western commercial property has fallen to its lowest level in almost ten years, by 36% from $9.1 billion in 2017 to $5.8 billion in 2018, according to a report from real estate consultancy, JLL.
According to JLL, the drop in investment is a result of the drop in oil prices eventually filtering through to major investors and sovereign wealth funds.
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