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Saudi Arabia Real Estate Report Q1 2013

Saudi Arabia real estate market: New market research published

The Saudi Arabia Real Estate report examines the commercial office, retail, industrial and construction segments throughout the kingdom in the context of a bullish outlook for the economy, its buoyant construction sector and the fledgling weakness in the commercial real estate rental market.

With a focus on the two principal cities of Riyadh and Jeddah, the report covers the rental market performance in terms of rates and yields over the past 18 months and examines how best to maximise returns in the commercial real estate market, while minimising investment risk and exploring the impact of the government-fed construction boom on a market already characterised by oversupply. The key growth areas driven by increasing activity on the part of international investors and the potential of the domestic consumer market are also explored, with corporate growth strategies looking to the kingdom for expansionary opportunities.

Nevertheless, Saudi Arabias various real estate sectors are developing in different directions and at varying rates. The commercial market in general suffers from oversupply and is forecast to undergo limited growth in the short term; recently collected data from July 2012 does not contradict this long-held view in light of the dynamic supply pipeline. Of the three sub-sectors that we survey there are pockets of growth opportunity, particularly in the retail segment.

Key Points

- Newly collected data in July 2012 covering the first six months of the year have not been encouraging, with demand failing to keep pace with new supply. With no sign of a slowing in the construction pipeline, we anticipate the imbalance to continue to place downwards pressure on the majority of rental rates.

- Saudi Arabias growth outlook remains broadly positive. Leading indicator data show that the economy is firing on all cylinders, with high oil prices, heavy government spending and buoyant consumer confidence driving robust economic growth. With oil prices continuing to trade at historically high levels in the first half of the year, we see few risks to the countrys positive near-term outlook.

- Important developments in Saudi Arabia are supporting our positive outlook for the countrys residential housing market. Two moves in particular suggest that the construction industry will meet our forecast of 9.3% real growth over 2012. Firstly, the kingdom has embarked upon the first stage of its mass low-cost housing plan and, secondly, mortgage lending for Q212 was at its highest historical level on the back of indicators that a new mortgage law will be put in place over October. As such, risks to our optimistic five-year forecasts are now weighed to the upside.

- We expect H212 to witness the intensification of a long construction boom, as Saudi Arabia moves to remedy years of chronic underinvestment in the kingdom. Heading into H212, a robust outlook premised on ambitious spending plans has been significantly galvanised by a raft of new projects, improvements in infrastructure, an increase in cement output capacity and a strengthening credit environment. As such, we posit 9.3% year-on-year real growth for the construction industry as a whole in 2012, with residential and non-residential construction to account for a large percentage of the sum for the foreseeable future.

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