PROPERTY MARKET REPORT
2020 SAUDI ARABIA PROPERTY MARKET REPORT
ABOUT Established in 2008, Cavendish Maxwell is one of the largest and most respected property consultancies in the region. An influential partner and trusted advisor to key stakeholders in real estate markets throughout the Middle East and Africa, we offer a comprehensive range of exceptional property services across a diverse mix of sectors and asset classes. Cavendish Maxwell is a certified member firm of the Royal Institution of Chartered Surveyors (RICS), bringing together a world-class team of handpicked property consultants and surveyors, unmatched elsewhere in the region. Our team of highly qualified professionals is trusted by real estate market stakeholders throughout the region, including international and domestic banks, property developers, governments, owners and investors, asset managers and professional services firms. We service a diverse mix of specialist property sectors including, residential, retail, offices, hospitality, healthcare, education, industrial and logistics. Cavendish Maxwell also publishes independent reports, prepared to globally accepted standards, for loan security, bank lending, audit, insurance reinstatement, dispute resolution, risk management, debt recovery, performance analysis, purchase and sale advice, and third-party reliance purposes.
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
FOREWORD The trajectory of the first half of the year has been unlike any other, quickly going from business-as-usual to social distancing measures and restrictions in a bid to contain the spread of a highly contagious virus. At the same time, the focus on diversification is greater than ever, with hydrocarbon prices once again volatile amid increased supply and worries of weak global demand. At this crucial time, support from authorities has been extended to help businesses across sectors survive and minimise monetary and manpower loss. As the situation continues to evolve, the impact on various sections of the economy, including real estate, is yet to be fully ascertained. Against this backdrop, in our latest report we take a look at the performance of Saudi Arabia’s real estate market with a focus on the measures introduced to mitigate the economic impact of the COVID-19 contagion. The analysis provides a comprehensive overview of the residential, commercial, retail, hospitality and industrial sectors with the aim to be a valuable tool in our clients’ decision-making process.
CONTENTS 04
Macroeconomic Overview
24
Industrial Market Overview
11
Key Policy Changes
26
Tourism and Hospitality Market Overview
04 12
New Insfrastructure Projects
28
Entertainment and Retail Market Overview
04 14
Residential Market Overview
30
A Word from our Chief Economist
20
Commercial Market Overview
3
2020 SAUDI ARABIA PROPERTY MARKET REPORT
MACROECONOMIC OVERVIEW GROSS DOMESTIC PRODUCT According to the General Authority for Statistics in Saudi Arabia, Gross Domestic Product at current prices in 2019 was SAR 2,973.6 billion, slightly higher by 0.8% from 2018. Excluding import duties, GDP amounted to SAR 2,952.4 billion. Import duties are the tax payments on goods or services bought from outside the country.
GDP BY ECONOMIC ACTIVITY IN 2019 AT CURRENT PRICES 1%
3%
Imputed Bank Services Charge
Community, Social and Personal
15%
Finance, Insurance, Real Estate and Business Services
3%
Agriculture, Forestry and Fishing
8%
Transport , Storage and Communication
12%
34%
Wholesale & Retail Trade, Restaurants and hotels
Mining and Quarrying
7%
Construction
15%
2%
Manufacturing
Electricity, Gas and Water
Source: Ministry of Finance, General Authority for Statistics
GDP BY INSTITUTIONAL SECTORS IN 2019 AT CURRENT PRICES (SAR MILLION) 31% Oil Sector
Sector Oil Sector Non-Oil Sector Private Sector Goverment Sector Gross Domestic Product Excluding Import Duties Import Duties Gross Domestic Product
69% Non-oil Sector Source: General Authority for Statistics
4
*Preliminary Data
2018
2019*
985,900
926,338
1,944,202
2,026,064
1,300,856
1,354,322
643,346
671,743
2,930,101
2,952,403
19,355
21,223
2,949,457
2,973,626
2020 SAUDI ARABIA PROPERTY MARKET REPORT
GROSS DOMESTIC PRODUCT PER CAPITA
GDP OUTLOOK Saudi Arabia is the top oil exporter in the world and holds around 16% of the world’s proven petroleum reserves. The recent oil price decline, brought on by an increase in supply of the commodity and weaker demand due to the restrictions implemented to counter COVID-19, has therefore naturally impacted the country’s economy which relies on hydrocarbon revenues.
Gross Domestic Product SAR million
Gross National Income SAR million
Q3 2018
Q3 2019*
745,062
745,369
752,367
750,785
33,516
34,320
22,230
21,718
22,448
21,876
Population (Thousands)
According to the International Monetary Fund, Saudi Arabia’s economy is forecast to contract 2.3% in 2020 but bounce back in 2021, growing 2.9%. In a bid to shore up state finances, Saudi Arabia has tripled its value added tax to 15% from 5% and suspended its cost of living allowance, among other measures.
Gross Domestic Product Per Capita SAR
Gross National Income Per Capita SAR *Preliminary Data
Source: Ministry of Finance, General Authority for Statistics
POPULATION According to the General Authority for Statistics in Saudi Arabia, the country had a total population of 34.2 million in Q2 2019 up 2.5% from 2018. The largest share of population belonged to the 35 to 39 age group. As of mid-2019, there were 3.7 million people in this segment of which 63% were male and 37% were female. Saudi Arabia’s population registered a positive compound annual growth rate (CAGR) of 2.5% during the period mid-2016 to mid-2019.
33,413,660 12,645,033
12,185,284
11,705,998
15,000,000 10,000,000 5,000,000
20,768,627
2017
20,000,000
20,427,357
2016
19,739,056
5,000,000
19,240,956
10,000,000
18,745,846
15,000,000
25,000,000
20,081,582
Population
14,172,704
20,000,000
14,479,113
30,000,000
13,866,795
35,000,000
30,000,000
13,527,861
35,000,000
25,000,000
32,612,641
31,787,580
34,218,169
40,000,000
CAGR 2.5%
18,259,719
Population
40,000,000
POPULATION SPLIT BY NATIONALITY
33,413,660
32,612,641
31,787,580
POPULATION OVERVIEW
0
0
Source: General Authority for Statistics
2018
Mid-2019
Female
Mid-2016 Male
Source: General Authority for Statistics
Mid-2017 Saudi
Mid-2018 Non-Saudi
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
IMPACT OF COVID-19: OIL PRICE DROP
70
Two-day meeting of Opec+ oilproducing nations and partners including Russia gets underway. March 5
Price in USD per barrel (Opec Basket)
60
Saudi Arabia and Russia plan to re-engage in talks to agree on output reduction. Early April
Opec and its partners reach agreement to reduce production by 10 million barrels per day. April 9
Opec+ talks end without agreement with Russia refusing to lower oil output. March 6
50
40
Saudi Arabia announces it will lower its oil price and increase output. March 9
30
Price of benchmark US oil falls below $0 a barrel amid a surplus in supply demand worries. April 20
20
10
0 2 Mar
9 Mar
Source: Cavendish Maxwell
6
16 Mar
23 Mar
30 Mar
6 Apr
13 Apr
20 Apr
27 Apr
2020 SAUDI ARABIA PROPERTY MARKET REPORT
MEASURES TO MITIGATE ECONOMIC IMPACT OF COVID-19
14 March:
30 March:
Saudi Arabian Monetary Authority (SAMA) pledges
King Salman orders free COVID-19 treatment in
SAR 50 billion package for private sector growth.
government and private hospitals for citizens and residents, including those in violation of residency
20 March:
laws.
Finance Ministry commits SAR 70 billion for economic growth.
3 April: Government to cover 60% of the salaries of private-
22 March:
sector employees in industries affected by the
Expat levy waived for work permits expiring during 20
pandemic.
March-30 June, and tax payments deferred.
15 April: 26 March:
King Salman approves a package of additional
Saudi Arabian Monetary Authority orders licensed
measures and government earmarks SAR 50 billion to
payment services providers to raise the allowed top-
expedite payments to the private sector. Businesses in
up of the monthly ceiling limit for e-wallets to SAR
commercial, industrial and agricultural sectors to receive
20,000.
a 30% discount on electricity bills for two months with possible extensions and industrial and commercial
26 March:
sector subscribers to pay only 50% during Q2.
King Salman chairs G20 extraordinary summit to contend with the economic impact of COVID-19.
17 April: Saudi Arabia pledges SAR 1.88 billion to support
28 March:
global efforts to combat COVID-19.
Saudi Arabian banks donate SAR 155 million to Health Endowment Fund to combat the spread of
2 May:
COVID-19.
Social Development Bank sets aside SAR 9 billion for micro-enterprises and self-employed businesses.
29 March: Sama approves new round of economic support
11 May:
initiatives, including the provision of finance for
Fuel prices slashed by nearly 50 % with immediate
individuals who have been made redundant in
effect. Value added tax (VAT) raised from 5% to 15%
the private sector, fee exemptions in some cases,
starting from 1 July 2020. Cost of living allowance
reassessing credit card interest rates and refunding
suspended starting from 1 June 2020. Operating and
forex transfer fees for those affected by travel plan
capital expenditures cancelled or postponed for
cancellations.
some government agencies and allocations reduced for several programme initiatives of Vision 2030 to the
29 March:
tune of SAR 100 billion.
Education Ministry to continue disbursement of financial allocations, medical insurance and
2 June:
treatment allowance over the next three months for
More sectors including factories, mining, internal aviation,
Saudi scholars and their companions, including those
intercity buses, car rental vehicles, ferries at Jizan and
who have been suspended from disbursement, or
Farasan Islands, tourist accommodation facilities, postal
whose scholarships have ended, residing outside the
and logistics services and farms to follow precautionary
kingdom.
measures and additional preventive protocols.
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
FOREIGN DIRECT INVESTMENT In recent years, foreign direct investment (FDI) flows to Saudi Arabia followed a downward trend due to political factors and lower oil prices. However, inflows have steadily recovered owing to economic diversification efforts which have seen new projects been launched outside the oil and gas sector. With an aim to strengthen confidence in the kingdom and spur investments, in 2019, Saudi Arabia adopted seven guiding principles for investment policymaking. These include nondiscrimination, investment protection, investment sustainability, enhanced transparency, protection of public policy concerns, ease of entry for employees, and the transfer of knowledge and technology. According to figures from the Saudi Arabian Monetary Authority, in 2019, FDI stood at SAR 17.1 billion, rising 7.4% from SAR 15.9 billion in the same period in 2018. In October 2019, at the third edition of its Future Investment Initiative, Saudi Arabia announced 23 investment deals valued at AED 55 billion across sectors including energy, transport, oil and gas, petrochemicals and manufacturing. Data from Invest Saudi, a government body responsible for promoting foreign investments, showed that 1,130 of foreign companies were created in 2019, a 54% increase from a year ago. According to the World Investment Report 2019 by United Nations Conference on Trade and Development, FDI inflows to Saudi Arabia jumped by more than 120% between 2017 and 2018, reaching SAR 12 billion as sectors including recruitment and employment services, real estate brokerage, audio-visual and media services, and land transport services opened up to FDI.
30,529
2014
2015
30,000
27,947
30,044
20,000
17,108
15,927
25,000
15,000 10,000
5,321
FDI Net Inflow (SAR billion)
35,000
33,243
SAUDI ARABIA FDI INFLOWS
5,000 0
2013
2016 Year
Source: World Bank
8
2017
2018
2019
2020 SAUDI ARABIA PROPERTY MARKET REPORT
7 KEY REASONS
TO INVEST IN SAUDI ARABIA
1
SAUDI ARABIA’S DIVERSIFICATION AND REFORM JOURNEY
2
INTEGRATED INSFRASTRUCTURE
3
YOUNG AND SKILLED WORKFORCE
4
LEADING FINANCIAL SECTOR
5
GAME-CHANGING OPPORTUNIES
6
ATTRACTIVE PROPERTY SOLUTIONS
7
EXPANDING QUALITY OF LIFE
Source: Saudi Arabia General Investment Authority (SAGIA)
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
EASE OF DOING BUSINESS RANKINGS OF MENA ECONOMIES 2020
SAUDI ARABIA’S PERFORMANCE SPECIFICS
Rank Saudi Arabia’s ranking against 190 countries
1
UAE
2
Bahrain
Starting a Business
38
3
Morocco
Dealing with Construction Permits
28
4
Saudi Arabia
Getting Electricity
18
5
Oman
Registering Property
19
6
Jordan
Getting Credit
80
7
Protecting Minority Investors Qatar
3
8
Paying Taxes
57
Tunisia
9
Trading across Borders
86
Kuwait
Enforcing Contracts
10
51
Malta
Resolving Insolvency
168
Parameters
Source: World Bank’s Doing Business 2020 report
Through the successful implementation of eight reforms between May 2018 and May 2019, Saudi Arabia was recognised as a leading improver in the World Bank’s Doing Business 2020 report which assesses the ease of doing business in 190 countries. Saudi Arabia climbed to take the 62nd place from 92 last year, helped by the introduction of a secured transactions law and an insolvency law, a new online platform to certify imported goods, and upgrades to infrastructure at Jeddah Port. nd
VISION REALISATION PROGRAMMES To achieve the 96 strategic objectives of Saudi Arabia’s Vision 2030, the Council of Economic and Development Affairs (CEDA) established 13 Vision Realisation Programmes (VRPs). Each VRP comprises a series of initiatives and delivery plans, guided by pre-defined objectives and key performance indicators tied to 5-year milestones. Once the economic impact of COVID-19 is absorbed, GDP growth might suffer in the near term. However, successful implementation of VRPs is expected to drive growth within several sectors of the non-oil economy. The G20 summit on expected to be held in Riyadh in November 2020 will provide further support.
THE 13 VISION REALISATION PROGRAMMES National Companies Promotion Programme
Public Investment Fund Programme Hajj and Umrah Programme
Human Capital Development Programme
Privatisation Programme
Quality of Life Programme
National Industrial Development and Logistics Programme
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Housing Programme
Financial Sector Development Programme
National Transformation Programme
National Character Enrichment Programme
Strategic Partnership Programme
Fiscal Balance Programme
2020 SAUDI ARABIA PROPERTY MARKET REPORT
KEY POLICY CHANGES Keeping with the Vision 2030 strategy to reduce Saudi Arabia’s dependence on hydrocarbons and explore new revenue streams to achieve financial sustainability, several policy measures were implemented in 2019.
2019 POLICY HIGHLIGHTS
Fee-based Premium Residency scheme launched enabling individuals to buy property and conduct business without a Saudi sponsor.
Women permitted to obtain passports and travel without consent from male relative.
State-owned oil company Saudi Aramco lists on the Saudi Stock Exchange (Tadawul).
Ministry of Energy, Industry and Mineral Resources split into two entities.
Foreign ownership limit of 49% in shares of listed companies eased.
Tourist visas available to citizens of 49 countries.
Unmarried foreign couples allowed to rent hotel rooms. Saudi women permitted to rent hotel rooms by themselves.
May
June
August
September
October
December
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
NEW INFRASTRUCTURE PROJECTS
Makkah Grand Mosque
King Abdullah Bin Abdulaziz Medical Complexes
The third expansion of the mosque will add 32 hectares (ha) of space for 300,000 worshippers, as well as new eletromechanical systems, fire safety networks, hygiene and water treatment facilities, and sound systems.
The 1,300 sq km healthcare megaproject’s scope involves building a medical city each in Jeddah and Riyadh.
Pepsi’s Chinese bottle-maker comes to Saudi Arabia
Saudi Aramco’s Berri and Marjan oil fields
Pan-Asia Pet Resin, a Chinese bottling company which supplies products to Pepsi and Coca-Cola will set up a SAR 4 billion plant in Saudi Arabia.
The increment programmes will see production capacity increase by 550,000 barrels per day of Arabian Crude Oil and 2.5 billion standard cubic feet a day of gas.
King Salman Energy Park (Phase 1)
Riyadh Rapid Bus Transit System
A three-phase 50 sq km energy and industrialisation centre with key focus on technology.
A 22-line network spanning 1,200km across 6,765 stations in the Saudi capital.
Riyadh Metro project The metro public transit will have six lines spanning 176 km with 85 metro stations.
2020
12
2021
2022
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
In 2016, Crown Prince Mohammed bin Salman launched an ambitious economic and social reform plan to diversify the Gulf’s largest economy away from energy.
Saudi Arabia’s first wind power plant The 400-megawatt facility in Dumat Al Jandal in Al Jouf will be the biggest wind power plant in the Middle East.
To achieve this, the kingdom is opening up the country’s economy, boosting the private sector including small and medium size enterprises, easing rules to set up and conduct business to attract foreign investors, and taking measures to lower unemployment. Central to the plan is increasing the share of non-oil revenues, transforming the kingdom’s sovereign wealth fund, the Public Investment Fund, privatising state oil company Saudi Aramco, and developing public service sectors such as health, education, infrastructure, recreation and tourism.
Saudi Arabia’s first polyisobutylene (PIB) plant The Jubail plant will produce over 70,000 tonnes of PIB which will be exported to the Middle East, Asia, and Europe for the manufacturing of adhesives, lubricants, and fuel additives.
Solar projects backed by China, Japan, and Saudi Arabia The kingdom will generate up to 60 gigawatts (GW) of renewable energy by 2030 and solar energy will account for 40 GW of the total renewable capacity.
ADDITIONAL PROJECTS Prince Nayef bin Abdul Aziz International Airport expansion in Al Qassim King Khalid International Airport expansion SAFIRA fabrication yard Al Batha shipping port
2024
2030
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
RESIDENTIAL MARKET OVERVIEW Property prices and rents have been under pressure in Saudi Arabia over the past few years amid the tepid economic environment and the government’s Nitaqat Saudisation programme, which has resulted in the departure of expats and dwindling residential demand. Data from the General Authority for Statistics showed that the total number of expats in the Saudi labour market declined by close to 2 million since the start of 2017, with around 56,000 workers leaving the market during Q3 2019 alone. The recent increase in Value Added Tax from 5% to 15% is likely to further influence the decision of expats to identify opportunities elsewhere. At the same time, the Saudi Housing Vision Realisation Programme aims to increase the home ownership rate among Saudi citizens to 60% by the end of 2020 and 70% by 2030 from 50% in 2016. A number of initiatives have been launched to achieve this goal including incentivising developers to increase affordable housing offerings and making private sector financing more accessible. Measures already in place included lowering mortgage down payments from 10% to 5% and increasing banks’ loan-to-value ratio for mortgages of first-time homebuyers from 85% to 90%. According to the Saudi Arabian Monetary Authority, Saudi banks issued 170,275 new mortgage contracts in 2019, dwarfing the 46,885 contracts issued in 2018. By the end of 2020, the kingdom aims to increase total outstanding mortgages to SAR 502 billion riyals from SAR 300 billion in 2018. In a move that was further expected to spur construction activity, Saudi Arabia’s Ministry of Housing in 2019 announced an initiative to support residential renovations by providing financing for homes that are older than 15 years. Whilst the residential sector had started to show signs of recovery, the restrictions imposed towards the end of Q1 2020 to counter the spread of COVID-19 have impacted economic activity, extending to real estate, hospitality and retail, among others. The recovery is likely to face near term headwinds until clarity emerges on the trajectory of the pandemic and economic activity resumes.
PRICE PERFORMANCE According to the General Authority for Statistics, in Q1 2020, real estate prices increased by 1.2% on average compared to the same quarter a year ago across the kingdom. This was largely driven by residential property prices which rose 2.1%. In Q1 2020, apartment prices increased by 2.2%, whilst villa prices declined by 2.6%.
RESIDENTIAL REAL ESTATE PRICE MOVEMENT 2.6%
3
2.1%
2.1%
2.2%
2 0.7%
0.8%
1 0
-0.2%
-1
-1%
-2
-1.7%
-3
-2.6%
-4
-3.5%
-5 -6
-4.8% -5.1%
-5.8%
-5.6%
-6.1%
-7
PLOT
RESIDENTIAL Q1 2019
Source: General Authority for Statistics
14
-4.6%
-3.7%
-2.7%
-3.1%
Q2 2019
APARTMENT
VILLA Q3 2019
Q4 2019
Q1 2020
2020 SAUDI ARABIA PROPERTY MARKET REPORT
10,800
65,000
11,700
80,000
17,000 22,500
42,500 58,500 77,500 95,000
10,300
62,500
31,500
70,000
53,150
82,500
JUBAIL DAMMAM AL KHOBAR
32,500
82,500
72,800
122,500
88,000
125,000
108,500
150,000
JEDDAH
875,000
2,575,000
1,285,000
3,250,000
2,640,000
4,225,000
23,000
85,000
50,000
100,000
53,000
120,000
69,000
137,000
RIYADH
360,000
2,800,000
537,500
3,550,000
575,000
4,340,000
697,500
5,650,000
6,500,000
AVERAGE RENT (SAR)
AVERAGE PRICE (SAR)
APARTMENT STUDIO
APARTMENT 1 BR
2 BR
3 BR
VILLA/TOWNHOUSE 3 BR
4 BR
STUDIO
1 BR
2 BR
3 BR
VILLA/TOWNHOUSE 5 BR
6 BR
Source: Cavendish Maxwell Note: All sales and rents are based on active listings
3 BR
4 BR
5 BR
6 BR
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
SAKANI Since 2017, the Ministry of Housing and the Real Estate Development Fund’s Sakani housing programme has provided a variety of residential and financing options to enable home ownership for over 583,000 citizens in the kingdom. The programme provides Saudi citizens the option to access residential land, prefabricated housing units, self-build residential housing and under construction housing units, among others. By the end of 2020, the government aims to provide housing solutions to over 300,000 Saudi families, enable 130,000 families to live in new homes and build 100,000 new residential units by partnering with real estate developers.
SAUDI ARABIA’S ALLOCATION OF RESIDENTIAL PLOTS 2019 Jouf 3% Hail 5%
Madinah 5% Najran 8%
Northern Borders 2% Al Bahah 2% Tabuk 1%
Makkah 25%
Jazan 8%
Qassim 9% Eastern Province 9% Source: Sakani
16
Riyadh 12%
Asir 11%
2020 SAUDI ARABIA PROPERTY MARKET REPORT
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
UPCOMING SUPPLY Similar to other countries, Saudi Arabia has put in place mobility restrictions to counter the spread of COVID-19. As a result, sectors including real estate have naturally been impacted with reduced manpower and disruptions to supply chain and procurement cycles. Anticipating potential delays, the Ministry of Finance declared that Saudi firms would be able to grant contract extensions and waive penalties for work delayed due to the pandemic. This covers delays in executing works and procurement, project delivery or item supply at the specified time, and the completion of works related to continuedexecution contracts. In 2019, the construction sector’s contract awards rose by 39% to SAR 32.5 billion, according to the US-Saudi Business Council. Whilst the pace of growth was expected to accelerate in subsequent years helped by contracts from megaprojects, several programme initiatives under the Vision 2030 plan are now witnessing lower capital allocations to the tune of SAR 100 billion and will likely delay the completion dates of these mega-projects.
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
Northern Borders
Jouf Jubail Tabuk
Dammam
Hail
Al Khobar Qassim Al Wajh Al Madina Riyadh Jeddah
Eastern Province
Makkah
Al Bahah Asir
Rafal Sky Gardens/Rafal Living Tower (Status: 88% complete as of April 2020) Riyadh
Najran
Jabal Omar Development (Status: 75% complete as of November 2019) Makkah 509 apartments
286 apartments
20
58
2022
2020
Amaala
ETLAL Residence (Status: 77% complete as of November 2019) Riyadh
(Status: Under-construction as of Q1 2019) Al Wajh
182 apartments
835 villas and condominiums (Subject to change)
42
2028 (First Phase – Q4 2020)
2020
Thakher City Residential Towers
Jeddah Tower
(Status: 24% complete as of November 2019) Makkah
(Status: Construction work resumed in Q3 2019) Jeddah 500 apartments
2,750 apartments
More than 250
2021
2020
Jeddah Gate (Status: 91% complete as of November 2019) Jeddah 4,000 apartments
Saudi Aramco – Fadhili Residential Compound – Housing Package (Status: 95% complete as of November 2020) Jubail
17
2,000 villas
2020
2020
Total units
Floors
Expected completion year
Source: Cavendish Maxwell
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
COMMERCIAL MARKET OVERVIEW Prospects for the commercial office industry in Saudi Arabia were encouraging as the government eased investment laws and encouraged private industries to ramp up operations in the kingdom. Vision 2030 also emphasised on the importance of women in the labour market, setting a goal to increase their participation from 22% currently to 30%. These policy initiatives bode well for the commercial market segment, not just in Riyadh, which accommodates the highest share of the country’s total workforce at 40%, but other cities too. However, with strict restrictions imposed in the kingdom and work from home measures implemented since March 2020, existing and future demand for office spaces has likely been impacted. Also, existing workplaces would need to be modified to fulfil social distancing and safety requirements once employees return to work, suggesting further implications on costs. As a result, many local and international companies are reviewing their expansion plans, with more anticipated to follow, until clarity emerges on the impact of the pandemic on businesses and the larger economy. In light of these new developments, flexible and co-working structures will likely experience increased interest as both small and large companies limit non-essential capital expenditure in the short to medium term. In the long term, the two separate government stimulus measures amounting to SAR 120 billion, announced to mitigate the economic blow dealt by COVID-19 to businesses, are expected to help support demand.
Others 19%
Eastern Province 19%
LABOUR FORCE DISTRIBUTION BY PROVINCE 2019
Riyadh 40%
Makkah 22%
LABOUR FORCE DISTRIBUTION BY GENDER AND AGE Q4 2019 AGE GROUP
MALE
FEMALE
TOTAL
15-19
39,590
11,480
51,070
20-24
413,771
83,638
497,409
25-29
1,245,636
214,071
1,459,707
30-34
1,657,790
261,961
1,919,751
35-39
1,512,631
275,138
1,787,769
40-44
1,202,030
217,224
1,419,254
45-49
826,600
132,054
958,654
50-54
628,575
71,810
700,385
55-59
397,930
34,522
432,452
64-60
195,627
12,268
207,895
65+
122,663
4,948
127,611
Source: General Authority for Statistics Note: Participants on the job subject to the rules and regulations of social insurance by administrative region and main groups of occupations in Q4 2019.
Saudi 24%
LABOUR FORCE DISTRIBUTION BY NATIONALITY 2019
Non-Saudi 76%
Source: General Authority for Statistics
Source: General Organisation for Social Insurance (GOSI)
Note: Participants on the job subject to the rules and regulations of social
* Premliminary data
insurance by sex, nationality and age group in Q4 2019.
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
PRICE PERFORMANCE Over the past year and when compared to residential real estate, the commercial sector recorded declines, data from the General Authority for Statistics shows. The decrease in commercial real estate prices has mainly been driven by commercial plots, whilst buildings have remained largely unchanged. On a yearly basis, declines in prices for galleries and shops were steeper at -1.2% but hold low weightage in the index and therefore have limited impact. Meanwhile the prices for commercial centres increased by 2.1%.
COMMERCIAL REAL ESTATE PRICE MOVEMENT -3%
Q1 2019 -1.8%
Q2 2019 -1.2% -0.1%
-2.5
-2
-1.5
-1
-0.5
PERCENT CHANGE IN Q1 2020 FROM
Q1 2019
Q4 2019
Q3 2019
Plot
-0.4
-0.7
Q4 2019
Building
0.1
0.1
Gallery/Shop
-1.2
0.3
Commercial Center
2.1
0
Q1 2020
-0.5% -3
SECTOR AND TYPE OF REAL ESTATE
0
Source: General Authority for Statistics
OFFICE MARKET RATES NAME OF CITY/TOWN
RENTAL RATE (SAR/SQ M)
Min
Max
Eastern Province
270
310
Jeddah
400
750
Riyadh
720
850
Source: Cavendish Maxwell Note: All rents have been sourced from active listings.
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
UPCOMING SUPPLY Northern Borders
Jouf Jubail Tabuk
Dhahran
Hail Qassim
Al Madina Riyadh
Jeddah
Eastern Province
Makkah
Al Bahah Asir
Najran
Tadawul Tower Riyadh
Altaaqa Office Building (Part of Zahid Business Park) Jeddah
Office Towers in King Fahd University of Petroleum and Minerals (KFUPM) Business Park Dhahran
Office and Industrial Park (Part of King Salman Energy City Phase 1) Eastern Province
King Abdullah Financial District World Trade Centre Riyadh
SABIC Headquarters Complex in Jubail Industrial City Jubail
Office centre in Rafal Sky Garden Riyadh
Source: Cavendish Maxwell
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
INDUSTRIAL MARKET OVERVIEW Saudi Arabia’s diversification agenda also places significant importance on the development of the industrial sector, with a slew of measures announced to boost industries such as logistics, mining and defence, among others. As part of the plan to transform Saudi Arabia into a global trading hub, Mawani, the Saudi Ports Authority, and global port operator DP World and regional port operator the Red Sea Gateway Terminal (RSGT) entered into contracts valued at around SAR 9 billion to develop and operate container terminals and use Jeddah Islamic Port as a regional hub for transhipment. To further develop the kingdom’s mining sector and attract local and international investments, the government allocated 54 mining reserve sites spanning 4,000 sq km. The sites, located in Riyadh, Makkah, Madinah, Asir, Hail and Najran, contain ore including gold, copper, silver, zinc, lead, iron, quartz and tin. Progressing on its Saudisation agenda, Saudi Arabia’s General Authority for Military Industries (GAMI) signed an agreement with the local entity of US arms maker Raytheon to localise the maintenance and refurbishment of its Patriot missile defence system for the Royal Saudi Air Defence Forces. The move is aimed at achieving the larger goal of Saudi Arabic meeting the needs of half its defence equipment and services locally, whilst generating 40,000 jobs for Saudis by 2030. In late 2019, Saudi Arabia also partnered with the World Economic Forum (WEF) to establish a branch of the Centre for the Fourth Industrial Revolution (C4IR), the fifth such facility in the world. The centre would provide space for the development of the mechanisms, plans and applications of the 4IR in the kingdom.
UPCOMING SUPPLY Saudi Pharmaceutical Industries and Medical Appliances Corporation (SPIMACO) Headquarters and warehouse building Al-Fawazia Industrial Area, Al Khobar
King Salman Maritime Complex for Maritime Industries and Services Three projects including international marine industries company, offshore platforms and engines Ras Al Khair
Jeddah Economic City Three-phase development spread across 1.5 sq km offering residential, commercial and entertainment facilities Jeddah Source: Cavendish Maxwell
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
TOURISM AND HOSPITALITY MARKET OVERVIEW In September 2019, Saudi Arabia began offering e-visas and visas on arrival to citizens of 49 countries. Historically, tourism in Saudi Arabia has mainly been driven by pilgrimage and business activities. The latest move was a step further in establishing tourism as a key revenue generator for the kingdom, with the aim for it to contribute 10% to the gross domestic product by 2030 from 3% in 2019. A mere six months later, inbound and outbound travel in Saudi Arabia stands suspended, with uncertainty surrounding even the annual Haj pilgrimage in July/August which typically attracts over 2.5 million pilgrims. According to Saudi Arabia’s tourism minister, the sector could witness a decline of up to 45% this year alone. The hospitality sector is expectedly bearing the brunt of the lost tourism revenue. According to STR Global, occupancy rates in Mecca and Medina were less than 5% for the month to 21 March 2020, down 97% from March 2019, as Saudi Arabia suspended Umrah pilgrimages in late February. For the same period, in Riyadh and Jeddah, occupancy was lower by 57% and 54%, respectively. However, as the government transformed hotels into quarantine centres to curb the spread of the virus, there is the hope of some revenue generation for the hospitality industry. In April, the tourism ministry said that 11,000 rooms in the kingdom had been readied to quarantine Saudi citizens who were expected to return from foreign countries. The timeline of recovery over the long-term is still uncertain and largely depends on how soon travel restrictions are lifted and tourism activities resume. As of now, the schedule for the G20 Leaders’ Summit to be held in Riyadh in November 2020 remains on track. The summit, to be hosted for the first time by Saudi Arabia, is expected to garner significant revenue for the hospitality and retail sectors and generate positive visibility for the kingdom.
HOTEL OCCUPANCY OF MIDDLE EAST CITIES 60% 40% 20% 0% -20%
-30% -38%
-40% -54%
-60% -77%
-80% -100%
-97%
-97%
Medina Makkah
Occ Actuals
-57%
-53% -62%
-78%
-88%
-92%
Beirut
-58%
Kuwait Manama Muscat Jeddah Amman Riyadh City
Dubai
Sharjah
Occ % Chg
Source: STR Global Note: Data represents occupancy and percentage change versus prior year for the week ending 21 March 2020 26
-35%
Doha
Ras Al Abu Khaimah Dhabi
2020 SAUDI ARABIA PROPERTY MARKET REPORT
UPCOMING SUPPLY
Northern Borders
Jouf
Dammam
Tabuk
Hail Al Khobar Qassim
Al Madina Riyadh Jeddah
Eastern Province
Makkah
Al Bahah Asir
Najran
Kempinski Hotel Makkah
The Assila Hotel
The House Hotel
Makkah
Jeddah
Jeddah
380
2023
304
2020
114
2020
Jabal Omar Hyatt Centric Makkah Hotel and Residences
Multiple hotels at Kaar Gateway
Somerset Corniche Jeddah
Makkah
Al Khobar
Jeddah
2021
135
396
2023
Voco Makkah
Centro Corniche
Makkah
Al Khobar
4,200
2020
247
Total Keys
Rayhaan by Rotana Dammam 285
2020
DAMAC Arjan
Abraj Kudai Makkah 10,000
2020
2020
Riyadh
2020
453
Expected completion year
2020
Source: Cavendish Maxwell
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
ENTERTAINMENT AND RETAIL MARKET OVERVIEW Apart from tourism and hospitality, the other sectors that have been hardest hit by the restrictions from the pandemic are entertainment and retail. Since mid-March, Saudi Arabia has suspended events and concerts and closed cinema halls. Resumption of these activities is critical to the country’s aim to position Saudi Arabia as a leading events and entertainment destination to locals and foreigners. In the last quarter of 2019 alone, the Riyadh Season, which offered over 100 entertainment and cultural events attracted over 11 million visitors of which a large proportion was international tourists. Vision 2030 too calls for increasing household spending on culture and entertainment from 2.9% to 6% and develop a market valued at SAR 30 billion. Malls have reopened after facing closures in the earlier stages of the pandemic but consumer behaviour and shopping trends are rapidly changing in favour of e-commerce and online shopping. Whilst physical retail struggles more than ever as people stay home, some online businesses in the kingdom have reported exponential growth in order volumes and values. The trend is concerning for brick-and-mortar establishments but bodes well for the kingdom’s broader goals. As part of the Financial Sector Development Programme, which sits within Vision 2030, the government aims to increase the proportion of online payments to 70% by 2030, from the 2020 target of 28%. Towards this end, the government has also introduced laws governing e-commerce to regulate digital payments and secure privacy and transparency. A challenge for sectors which largely depend on discretionary spending will be the policy changes announced recently including the suspension of the cost of living allowance for Saudi citizens resulting in lower disposable incomes. Separately, it remains to be seen if companies pass on the increase in VAT, which has been raised from 5% to 15%, to customers.
RENTS
Annual rates (SAR/sq ft) JEDDAH
Min
Max
Street retail
28
85
Community mall
70
150
Annual rates (SAR/sq ft) RIYADH
Min
Max
Street retail
25
100
Community mall
88
170
EASTERN PROVINCE
Annual rates (SAR/sq ft) Min
Max
Street retail
38
60
Community mall
55
130
Source: Cavendish Maxwell Note: All rents have been sourced from active listings. Factors affecting rents include location, building grade and age.
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
Northern Borders Jouf
Tabuk
Dammam Dhahran
Hail Qassim
Al Madina Eastern Province
Riyadh Jeddah
Makkah
Al Bahah Asir
UPCOMING SUPPLY Six Flags (Saudi Arabia’s first theme park) Qiddiya, Riyadh
UPCOMING GIGA-PROJECTS The Red Sea Project •
2023
Muvi Cinemas Dammam, Dhahran, Riyadh 2020
Najran
Phase 1 of the scheme is due to be complete in 2022. It includes 14 luxury and hyper-luxury hotels that will comprise 3,000 rooms, all across five islands and two inland resorts.
Amaala •
Wellness tourism destination including an airport, 2,500 luxury hotel rooms, 200 retail establishments, art galleries, marinas and 700 villas.
Saudi Museum of Modern Art Ad Diriyah, Riyadh 2020
Hayy: Creative Hub (Cultural complex) Jeddah 2020
Neom •
Independent international zone spanning three countries based on principles of renewable energy, technology, community, diversity, and modern architecture.
•
Investment of SAR 1.88 trillion over the coming years by PIF.
Qiddiya Avenues Riyadh (Leisure and commercial destination) Riyadh
•
Entertainment, sports and cultural destination.
•
300 recreational and educational facilities designed around five cornerstones of development.
2023
Al Widyan Mixed-use entertainment and shopping complex by Al Akaria and Arabian Dream Riyadh
Expected completion year
• •
Mixed use city and leisure destination in Riyadh spread over seven million sq m To be divided into 12 districts with residences, offices entertainment, retail, health and education facilities
Source: Cavendish Maxwell
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
A WORD FROM OUR
CHIEF ECONOMIST Real estate markets are notoriously slightly slow to react to major global macroeconomic trends, and then almost inevitably subject to over-corrections in both directions. The performance of the Saudi Arabia market in 2020 is set to conform closely to this repeated narrative.
JULIAN ROCHE CHIEF ECONOMIST
A thriving real estate sector in Saudi Arabia in the coming decade depends on the growth of internal demand. The gradual recovery in oil prices in mid-2020 will improve the fiscal position slightly, but that shouldn’t deter the continuation of the diversification and adjustment programme that Vision 2030 represents. Managing macroeconomic settings has undoubtedly been challenging. The 21.9% year-on-year fall in oil export revenues
to SAR 150 billion in Q11 and the SAR 120 billion stimulus package exacerbated fiscal imbalances that were evident in 2019, as well as provided a cause for concern over a new trade imbalance. The dramatic tripling of VAT to 15% was promptly balanced by the fact that 640,000 enterprises had by June benefited from postponement of their Zakat declarations and 250,000 enterprises had also benefited from VAT declaration postponements. All these are dramatic, negative headlines, but they are short-term economic results that can be reversed, far more easily than many of those in western countries. In fact, the net result for the Saudi economy has been postponement of investment decisions and higher savings2, with evidence already surfacing by mid-year that bank credit has rebounded. It does seem that the IMF will prove not too far from the mark in terms of the overall negative impact on GDP certainly being held down to single digits. Given the scale of the challenge, it is hard to fault the Saudi government’s macro-economic response. What matters far more in 2020 than fiscal deficits or the achievement of specific targets set last year or earlier are governance and leadership. With lockdown measures successfully in place, and hospitals running with surplus capacity, there has effectively been a vote of confidence in Saudi health policy. Encouraging, too, was the formation of the Ministry of Industry and Mineral Resources, the government’s initiatives in international debt repayment, and the continued recognition of the importance of SMEs. All of these trends will in turn impact the real estate market, where commercial and residential rents have now largely plateaued in most major urban centres. The stage is set for a more rapid recovery in the medium term, especially and already visible in respect of capital values in parts of the residential market, than would have been the case if the government had been either profligate or torpid. What is changing is the shape of demand: the need to focus buyers on opportunities with an architectural look and a financial structure that is a world away from the Saudi villas and apartments of even a decade ago.
1 General Statistics Authority of Saudi Arabia (2020) International Trade Q1 2020. Available at: https://www.stats.gov.sa/sites/default/files/ft_q1_2020_en.pdf
Retrieved 10 June 2020. 2
Saudi Arabia Monetary Authority (2020) Monthly Statistical Bulletin April 2020. Available at: http://www.sama.gov.sa/en-US/EconomicReports/
MonthlyStatistics/Monthly_Bulletin_Apr2020.pdf Retrieved 10 June 2020.
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2020 SAUDI ARABIA PROPERTY MARKET REPORT
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Aditi Gouri Associate Partner Strategic Consulting and Research
DUBAI
ABU DHABI
SHARJAH
MUSCAT
2205 Marina Plaza
605 West Tower, Abu Dhabi Mall
1801 Sarh Al Emarat Tower
Villa 836, Way 3012
Dubai Marina
Tourist Club Area
Buhaira Corniche Street
Al Sarooj
P.O. Box 118624
P.O. Box 126609
P.O. Box 38583
P.O. Box 3438
Dubai
Abu Dhabi
Sharjah
Muscat
United Arab Emirates
United Arab Emirates
United Arab Emirates
Sultanate of Oman
T: +971 4 453 9525
T: +971 2 448 4677
T: +971 6 715 0444
T: +968 24 694 150
Disclaimer: The information and analysis contained in this report is based on information from a variety of sources generally regarded to be reliable, and assumptions which are considered reasonable, and which was current at the time of undertaking market research, but no representation is made as to their accuracy or completeness. We reserve the right to vary our methodology and to edit or discontinue the indices at any time, for regulatory or other reasons. The report and analysis do not purport to represent a formal valuation of any property interest and must not be construed as such. Such analyses, including forward-looking statements are opinions and estimates only, and are based on a wide range of variables which may not be capable of being determined with accuracy. Variation in any one of these indicators can have a material impact on the analysis and we draw your attention to this. Cavendish Maxwell does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this report.
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