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Cavendish Maxwell, a leading property consultancy and chartered surveying firm in the Middle East, released its Saudi Arabia Property Market Report for 2020 comprising key property data and trends for the country’s real estate sector.
The industry report was compiled by the firm’s in-house strategic consulting and research team, and covers key data and overviews into the residential, office, retail, entertainment, hospitality and industrial sectors.
Commenting on the report, Aditi Gouri, associate partner, strategic consulting and research at Cavendish Maxwell, said: “In the first half of 2020, Saudi Arabia has had to reckon with the twin challenges of the COVID-19 pandemic and weak crude oil prices.
“The restrictions and travel bans have naturally affected sectors such as tourism, hospitality, retail and entertainment which are crucial to the Kingdom’s diversification strategy.
“Whilst other sectors including real estate are also bracing for an impact, the government has announced a slew of stimulus measures to cushion the economy.
“However, the full effect of the various developments is yet to be fully ascertained, as is the effect of policy updates including the increase in VAT and suspension of the cost of living allowance, among others.”
Key market insights
Saudi Arabia’s Gross Domestic Product (GDP) at current prices in 2019 was SR2, 973.6 billion, slightly higher by 0.8% from 2018. 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 recent years, Foreign Direct Investment (FDI) flows to Saudi Arabia followed a downward trend due to lower oil prices. However, inflows have steadily recovered owing to economic diversification efforts, which have seen new projects launched outside the oil and gas sector.
In 2019, FDI stood at SR17.1 million, rising 7.4% from SR15.9 million in the same period in 2018.
After softening over the past few years, residential property prices in Saudi Arabia had started to show signs of recovery. In Q1 2020, real estate prices increased by 1.2% on average compared to the same quarter a year ago, largely driven by residential property prices, which rose 2.1%.
However, restrictions imposed towards the end of March have impacted economic activity and the recovery is likely to face headwinds until clarity emerges on the trajectory of the pandemic.
In Q1 2020 and when compared to residential real estate, the commercial sector recorded declines, falling 0.5% from the same quarter a year ago. The government has recently eased investment laws and encouraged private industries to ramp up operations in the Kingdom.
However, many local and international companies are now reviewing their real estate requirements and expansion plans in the region in light of the impact of the pandemic, especially on the office sector and working preferences.
A mere six months after Saudi Arabia began offering e-visas and visas on arrival to citizens of 49 countries, inbound and outbound travel in the country stands suspended. Uncertainty surrounds 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 government has transformed hotels into quarantine centers to curb the spread of the virus, raising hope of some revenue generation for the hospitality industry.
Entertainment and retail are the other sectors that have been hardest hit by the restrictions from the pandemic. Since mid-March, Saudi Arabia has suspended events and concerts and closed cinema halls.
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 goal to increase the proportion of online payments to 70% by 2030, from the 2020 target of 28%.
This article was originally published in Saudi Gazette.
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