Saudi Arabia is expected to witness a further rise in residential rents next year despite government plans to alleviate a chronic housing shortage in the Gulf's largest economy. The Saudi government plans to build 8,143 housing units in 16 cities as it struggles to bridge the gap between constrained supply and ever-increasing demand for accommodation, the Saudi Press Agency reported, citing the director of the general housing authority, Shwaish Aldhwaihi.
But that will do little to put a dent in the kingdom's vast housing needs. It needs to supply 1,000 residential units a day for at least the next five years, Fahad al Said, the chief executive of the Saudi Real Estate Company, told Zawya Dow Jones. The property market in the kingdom is expected to grow by between 5 per cent and 7 per cent a year. The kingdom's housing authority has already signed contracts to build 1,813 units, the news service reported.
Demand for housing in Saudi Arabia is expected to become more acute in the coming decade because of its rapid population growth and an influx of foreign workers employed on vast infrastructure projects. The shortage is driving inflation in the country which is running at four times historic averages. Rents in Saudi Arabia have already risen by more than 14 per cent in the year to last month, data from the official statistics agency showed.
"There is a shortage of housing units and population is on the rise, which could push the rental market up significantly next year as well," said Saud Masud, the head of research and senior real estate analyst at the Swiss bank UBS. Saudi Arabia's population is expected to grow more than 32 per cent in the next 10 years to 33 million, the Saudi department of economy figures show. Given the current average household size of 5.7 people in the kingdom, this would require an additional 1.4 million homes, the property consultancy CB Richard Ellis said in a research note.
"Market dynamics will be determined by how fast the supply side comes to meet the demand. But, in the near term, the demand side will maintain pressure on the housing market," Mr Masud said. Saudi Arabia, which pumps about 10 per cent of the world's oil, is seeing inflation quicken to about 4 per cent last month, up from 3.5 per cent in October. The government says rising rents are one of the main drivers, while economists expect the inflationary trend to continue as the government increases spending on projects.
The financial crisis has eased inflationary pressure around the region from record levels last year as the price of oil peaked at US$147 a barrel and property prices recorded double-digit gains. Now price pressures are expected to return across the Gulf as the region recovers from this year's downturn. The kingdom's cost of living index stood at 124.7 last month, up from 119.9 a year earlier, official data showed.
Dar Al Arkan Real Estate Development, Saudi Arabia's biggest property company by market value, and other developers are building residential developments as the kingdom's population expands. Dar Al Arkan said in October it would build a project in Jeddah valued at 7.5 billion riyals (Dh7.34bn), which includes residential units, public parks and schools. * with agencies @Email:email@example.com