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KSA economic diversification strategy and impact on the real estate market

KSA economic diversification strategy and impact on the real estate market

June 2016

The oil dependent economy of Saudi Arabia has announced its first back to back years of budget deficit since 2002. The deficit recorded in 2015 and projected for 2016 is due to the record decline in oil revenues which was not entirely off-set by increasing non-oil revenues, according to JLL KSA.

Although the government previously realised the threat of falling oil prices earlier, attempts to diversify the economy were not enough to off-set the decline in oil revenues seen since mid-2014. The diversification of Saudi’s economy away from oil is now being addressed head on by Deputy Crown Prince Mohammed Bin Salman.

In April the Deputy Crown Prince announced the “Saudi Vision 2030”; a plan which aims to liberate the Kingdom from its primary reliance on oil, primarily through the State’s Public Investment Fund (PIF). The PIF currently holds approximately USD 100 billion worth of stakes in local companies.

In terms of real estate, JJ says: “Our quarterly market analysis of the Riyadh and Jeddah real estate markets suggest a general slowdown in Q1 owing to the economic downturn. Real estate transactions across the Kingdom declined during Q1 2016 to their lowest level since 2011, recording a y-o-y drop of 7.7% to USD 22.2 billion (SAR 83.3 billion). This is reflective of the Kingdom’s short term economic struggles.”

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