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December 2015

Jeddah’s real estate market entered 2015 on a healthy note, says Jamil Ghaznawi, National Director & Country Head – KSA, JLL.

“Office rents had increased by an overall average of 7% during 2014, however, by Q3 2015 the office sector saw a slowdown, due to the slowdown in economic activity. Despite reduced demand and take – up, vacancies in the office market remain the lowest of any major market in the region at around 7%,” Ghaznawi explains.

According to the expert, the hospitality sector in Jeddah was the strongest performing and most stable sector in the region during 2015. “Occupancies remained largely stable at around 75% throughout the year and while average room rates (ADRs) have decreased marginally during the year, they remained the highest in the region at USD 257 YT August.”

The residential sector however has been the most dynamic over the year, being impacted by two major legislative or regulatory issues, as Ghaznawi explains. This included the introduction of the 30% mortgage law in late 2014 – which resulted in shift from sales to rentals – as well as the drafting of the proposed white land tax.

The white land tax

“There is currently no certainty about the level of tax or how it will be collected and this has caused uncertainty and delayed the launching of new residential developments until more certainty is provided,” Ghaznawi says.

“The extent to which the proposed new tax will succeed in its objective of increasing the supply of middle-income housing will be dependent upon how the market reacts. Given that no details of how the tax will be administered, set or enforced have yet been released, it is too early to predict this reaction.

“What is clear is that this is only one issue that needs to be addressed in the campaign to increase the supply of middle-income housing in Saudi Arabia. The proposed vacant land tax is not a panacea or complete answer and we would expect other measures to be announced in the coming months as the government continues to address the need for more middle-income housing.”

Outlook for 2016

Looking ahead, the JLL expert identifies two notable challenges which are likely to face the Jeddah market in 2016: The impact of lower levels of government spending and the need to provide more affordable housing.

“As many of the planned infrastructure projects are already under construction, and further ones such as the Jeddah Metro are expected to go ahead, the impact of reduced spending is expected to be marginal in the short term.  General economic uncertainties may however result in further delays to many of the hotel and retail projects that are currently being planned in Jeddah,” Ghaznawi concludes.

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