RIYADH: The recent OPEC meeting eased Saudi markets with an agreement to reduce oil production and more stable prices with an expected average of US$50.3/barrel.
In 2016, the Saudi Vision 2030 and National Transformation Program (NTP) initiatives were launched in response to the challenges of declining oil prices and resulting need to cut government spending, says the JLL 2016 Year in Review.
The report highlights the impact of the ‘new age of austerity’ and other macroeconomic challenges of weakened spending power, new tax law establishments and the introduction of new real estate investment traded funds on the real estate sector.
Despite a decline in KSA’s GDP growth from 3.5% in 2015 to 1.6% in 2016, liquidity in the market was eased by the major first time raise of a SAR 39.7billion international sovereign bond sale.
The more positive outlook for the real estate sector began with the resulting government release of payments totalling US$10.6billion to contractors and the SAR20billion injected into the banking system.
Jamil Ghaznawi, Country Head of JLL, Saudi Arabia, says, “The real estate market in Saudi Arabia has inevitably followed in the wake of macro-economic effects brought about by fluctuating oil prices. The government’s major plans to energise the market have resulted in a more positive outlook for 2017 in line with measures to counteract reduced government and consumer spending.”
In an effort to diversify the economy and open the real estate market to smaller investors, the Capital Market Authority introduced new rules in 2016 allowing the formation of the Real Estate Investment Traded Funds (REITs) on the local stock exchange.
“The market is optimistic that by introducing REITs, the National Transformation Program’s (NTP) goal to increase real estate contribution to GDP from 5% to 10% annually will be achieved in addition to creating more transparency in the market.
“In addition, these funds could help provide an exit strategy for those developers seeking to create income producing assets rather than developments for sale,” says Jamil Ghaznawi.
The report also highlights 2016 as an active year for white land tax and home financing which both have implications for the real estate market in 2017 as the changes start to come into effect.
