Home prices in Saudi Arabia are skyrocketing, according to a new study.
Small villa prices soar in Riyadh
Asking prices for homes in some Saudi Arabia suburbs have jumped by more than half in the past year as demand grows for affordable housing.
The biggest price increases were for small villas, defined as houses between 300 and 400 square metres, according to the latest report by Banque Saudi Fransi.
In some areas of Riyadh the average asking prices for a small villa have grown by 59 per cent since the first half of last year.
The average price of a villa in the least-expensive areas of north Riyadh stands at 1.7 million Saudi riyals (Dh1.6m), compared with 1.07m riyals a year earlier, the bank reported.
The overall median asking price for a small villa in the kingdom rose 20.5 per cent in the past year, the bank said.
"People are opting for smaller villas only because the issue of affordability is critical," said John Sfakianakis, the chief economist for Banque Saudi Fransi. There was also a shortage of available units, with few flats on the market, he said. "Small villas are the only thing available now."
The Banque Saudi Fransi report is a biannual benchmark of the market, based on a survey of 37 property companies and agencies in the kingdom.
The lack of affordable housing for the country's youthful population is considered one of the most pressing issues facing Saudi Arabia. Its population has doubled since 1988 and an estimated 60 per cent of citizens are under the age of 30.
The country needs 1.65 million new homes by 2015 to meet demand, according to Banque Saudi Fransi.
Meanwhile, prices continue to rise on existing homes. The median price for a small villa is now 1.28m riyals, leaving many homebuyers in a "quandary", the bank reported.
The price is "too high for most young people to entertain the thought of buying a detached home", it added. "We expect some younger families will modify their expectations, choosing instead to buy larger apartments."
In March, the government announced plans to spend 250 billion riyals to build 500,000 homes.
"The promise of a string of new, state-financed housing projects could lead some Saudis to put off plans to buy homes for a year or two in anticipation that prices may stabilise or fall once new supply enters the market," Banque Saudi Fransi said.
The market may also get a boost from a long-awaited mortgage law, which would improve the climate for private lenders to make loans available. A draft of the law has been approved by the government's advisory panel, but it awaits final approval.
Currently 81 per cent of home financing in the kingdom is through non-interest loans provided by the state-operated Real Estate Development Fund, according to the bank's report. The government this year added 40bn riyals to the fund and increased the maximum credit per customer to 500,000 riyals, from 300,000 riyals.
But increased financing alone will not address the issues in the market, Mr Sfakianakis said.
Demand is likely to continue to drive up prices, making it difficult for the average Saudi to buy a home, even with financing. Land prices are also increasing.