House prices continued to fall in Saudi Arabia’s main cities during the first half of the year but transaction volumes rose sharply, indicating the market may be reaching the bottom of its current cycle, according to Knight Frank.
The real estate consultancy's latest Saudi Arabia Residential Market Review showed the decline in prices triggered by an economic slowdown that started in 2016 continued into the first half of 2019, with year-on-year apartment prices in Riyadh dropping 10 per cent in the first quarter and 6 per cent in the following three months. Villa prices fell 5 per cent in the first quarter and 2 per cent in the second quarter.
In Jeddah, apartment prices declined 11 per cent year-on-year in the first quarter and 8 per cent in the second quarter, while villa prices fell 7 per cent and 5 per cent over the same period. Only first quarter data was available for the Eastern Province, where overall residential prices fell 11 per cent year-on-year.
"The rising affordability challenge and the lack of suitable supply for middle and lower tier buyers continue to weigh on the sector," said Raya Majdalani, research manager at Knight Frank.
Transaction volumes, however, witnessed a hike as government initiatives aimed at making homes more affordable for citizens were deemed to have played “a key role in triggering development activity in the affordable segment of the housing market”, according to the report.
The volume of transactions completed in Riyadh in the first half of 2019 jumped 66 per cent year-on-year, and the volume of deals done in Jeddah climbed 56 per cent. Volumes in the Eastern Province cities of Dammam and Khobar were up 32 per cent.
“In H1 2019, we have seen a significant pick up in transaction volumes across key cities which indicates that the market may be heading towards the bottom of its cycle,” Ms Majdalani said.
The report also pointed to figures from the kingdom’s central bank, the Saudi Arabian Monetary Authority (Sama), which showed that residential real estate loans during the first quarter of the year were up 22 per cent year-on-year to 153 billion Saudi riyals (Dh149.84bn).
Knight Frank said it expects a recovery in the Saudi housing market "in the short-to-medium term", indicative of efforts to diversify the economy and to stimulate the housing sector. The Ministry of Housing aiming to increase home ownership to 52 per cent by 2020 and 70 per cent by 2030 from the current 47 per cent.
JLL, another real estate consultancy, forecast rents and prices in Riyadh to remain under pressure for the next two years as 50,000 new units are expected to come onto the market, bringing the total by the end of 2020 to 1.35 million, according to a survey it released on Wednesday. It reported a 5 per cent year-on-year fall in prices for apartments and villas in the capital during the second quarter.
In Jeddah, apartment prices dropped 6 per cent and villa prices fell 7 per cent year-on-year, and the JLL's report said that although government policies had a positive impact on demand for home loans, "some households are opting to hold back or pull out of buying a home as they anticipate further drops in residential prices".