RIYADH: Saudi Arabia’s real estate market is expected to recover in the second half of the year, driven by strong performances from both the oil and non-oil sectors, new analysis has said.
The Kuwait Financial Centre (also known as Markaz) in a new report predicted continued growth in the Gulf Cooperation Council’s real estate sector, with Saudi Arabia, Kuwait and the United Arab Emirates leading the way.
According to the report, prepared by Markaz’s MENA real estate team and India-based research firm Marmor MENA Intelligence, this growth is being driven by strong macroeconomic fundamentals, supportive government policies and growing investor interest.
This comes as Markaz’s Real Estate Macro Index scores for the second half of 2024 are forecast at 3.5 for Kuwait, 3.7 for the UAE and 3.6 for Saudi Arabia, indicating a strong recovery in the real estate market.
Kuwait and Saudi Arabia show improvements from their first-half scores of 2.9 and 3.55 respectively, while the UAE’s stable score of 3.7 signals the continued strength and sustained growth potential of these key GCC markets, the report said.
The development of the real estate sector is crucial for Saudi Arabia as it aims to become a global business, tourism and investment hub in line with Vision 2030.
“The Saudi cities of Riyadh, Jeddah and Dammam saw significant increases in residential sales transactions in the first quarter of 2024 by 77 percent, 93 percent and 28 percent, respectively, compared to the previous year,” Markaz said.
“The office sector has also strengthened, with rents increasing at premium and mid-range properties in these cities,” the asset management and investment banking firm added.
A recent Ministry of Investment report showed that 57 international companies established their regional headquarters in Saudi Arabia in the second quarter of this year, up 84 percent from the same period last year.
The Regional Headquarters Programme introduced new tax incentives for multinational companies relocating to Saudi Arabia, including a 30-year exemption from corporate income tax, withholding tax related to headquarters activities, discounts and support services.
“This rent growth is partly driven by the new regional headquarters initiative, part of Saudi Arabia’s Vision 2030, which was launched in early 2024,” Markaz said.
The report also reported that Saudi Arabia’s hospitality industry experienced significant growth in the first quarter of the year, with average room rates in Riyadh increasing by 26.8 percent.
The increase was driven by rising business travel, religious tourism through the Islamic Hajj and Umrah pilgrimages, and the country’s vibrant international and cultural events.
The Kuwaiti agency further said the outlook for Saudi Arabia’s real estate market remains positive, with it forecasting continued strong performance in the second half of 2024 due to robust non-oil sector activity and heavy government infrastructure spending.
“The market is believed to be in an acceleration phase, suggesting a dynamic period of growth ahead,” Markaz added.
Markaz cited International Monetary Fund (IMF) projections that Saudi Arabia’s real gross domestic product (GDP) is expected to grow by 2.6 percent in 2024, recovering from a past contraction, and raised an optimistic forecast of 8.1 percent growth next year.
“This economic recovery is also reflected in the real estate sector, with the General Statistics Office reporting that the real estate price index rose 0.6 percent and residential land prices increased 1.2 percent in the first quarter of 2024,” Markaz said.
UAE Real Estate
Markaz predicted that the UAE’s real estate sector will continue to grow through to 2024, driven by strong demand from the residential, office and hospitality sectors.
“The non-oil economy, including a large contribution from the real estate sector, is expected to maintain strong growth, supported by government support and favorable policies such as revised golden visa requirements that strengthen investor eligibility,” the report said.
The analysis highlighted that despite geopolitical uncertainty, the UAE real estate market continues to boom with record transactions and rising prices.
Residential property prices in Dubai and Abu Dhabi rose 18.3% and 8.6% respectively in the first half of this year, strengthening the UAE’s position as a premium residential market.
Markaz said lowering the minimum downpayment for a golden visa to 1 million dirhams ($272,264) is expected to attract more foreign investors and further boost the market.
“Office space in Dubai and Abu Dhabi have also seen rent increases due to increased demand, particularly for luxury properties, reflecting a market trend towards quality,” the report said.
“The hospitality sector continues to thrive, fuelled by surging tourism and business travel, contributing to robust average hotel room rates in major cities,” it added.
Markaz predicted that the UAE real estate sector would remain on a growth trajectory in the second half of the year, despite a slight slowdown in some areas and regions, such as Abu Dhabi.
The market’s resilience reflects a strong economic environment and effective policy measures, ensuring continued growth and investment attractiveness.
Kuwait Real Estate
Markaz said Kuwait’s real estate sector has also shown resilience and growth potential despite the tough economic situation, with GDP forecast to contract by 1.4 percent, following a 2.2 percent decline last year.
“Despite these broader economic challenges, the non-oil sector, particularly the real estate sector, is growing, supported by an expected 2 percent increase in non-oil GDP,” Markaz said. “Increased project activity and expected business reforms are driving this growth.”
The analysis highlights the resurgence of Kuwait’s real estate sector, characterized by rising rents and land prices. This is particularly evident in the Istimari area, or residential rental market, where apartment land prices have increased significantly year on year in most regions, except for the western district of Mahboula.
Commercial land prices have also increased across all governorates, while rental rates for three-bedroom and 60-square-meter apartments have remained stable and are showing an upward trend compared to the end of 2022, with some exceptions in the Mahboula and Khaitan areas near Kuwait City.
“Despite a decline in the overall volume and value of real estate transactions, the sector is expected to see further growth due to the normalisation of pent-up demand seen post the pandemic,” Markaz said.
“The future of Kuwait’s real estate market looks promising, supported by macroeconomic stability and strategic reforms that will foster continued recovery and expansion.”