Saudi Arabia’s property market is showing signs of a post-Covid recovery on the back of a broader increase in business activity in the kingdom. The residential market is benefitting from a number of factors including a recent decision to exempt property transactions from the 15 per cent value added tax rate and a booming mortgage market, consultancy Knight Frank said in its <em>Saudi Arabia Real Estate Market <a href="https://content.knightfrank.com/research/1862/documents/en/saudi-arabia-real-estate-market-review-q1-2021-8016.pdf">Review</a></em>. “The overall improvement in business confidence and market sentiment has led to a surge in residential mortgage loans, which rose by 38 per cent in the 12 months to the end of February,” said Faisal Durrani, head of Middle East research at Knight Frank. New residential mortgage loans for villas accounted for nearly 80 per cent of the 26,800 property contracts recorded in February, valued at 11.3 billion Saudi riyals ($3.01bn). The value of residential transactions completed in Riyadh in the first quarter of 2021 increased by 80 per cent year-on-year, with the number of deals up 25 per cent, Knight Frank's report said. The value of home deals in Jeddah increased 26 per cent and the number by 34 per cent. However, there was a divergence between the price performance of villas and apartments. Apartments increased in value across the kingdom – up 4.4 per cent year-on-year in Riyadh, 6.5 per cent in Jeddah and 3.2 per cent in the Dammam Metropolitan Area, but villa prices were 1.6 per cent, 6.3 per cent and 7.9 per cent lower, respectively. The kingdom exempted property deals from VAT in October last year and instead introduced a new 5 per cent real estate transaction tax. The move is expected to continue having a positive impact on deal levels and boost home ownership rates, Knight Frank said. Saudi Arabia has set an ambitious target of increasing home ownership rates in the kingdom to 70 per cent by 2030 under the Sakani programme – a joint initative between the Ministry of Housing and the Real Estate Development Fund that is building homes, distributing land plots and arranging home loans. “Like other global economies, the pandemic has driven a widespread economic slowdown across the kingdom, however improved business confidence during the closing months of 2020 … helped to drive a turnaround in performance in all main segments of the real estate market,” said Mr Durrani. The Ministry of Investment granted 466 foreign investment licences in the fourth quarter of last year, up 60 per cent on the prior year – 189 licences were granted in December alone. The industrial and manufacturing, logistics, retail, e-commerce and ICT sectors attracted the most investment. Office rents, however, remain under pressure. Grade A rents increased by 0.5 per cent in Riyadh, but fell 2.8 per cent in Jeddah and 4.3 per cent in the Dammam region. Grade B rents fell 2.5, 3.1 and 3.8 per cent, respectively. Vacancy rates tightened across most cities on improving business activity. Vacancies for Grade A space in Riyadh fell to just 7 per cent, although almost one third of Grade B units remain empty. The unemployment rate for Saudi citizens fell to 12.6 per cent in the three months to December 31, down from 14.9 per cent in the third quarter. “The increase in employment is expected to positively impact office demand going forward,” said Knight Frank.