Saudi Arabians are likely to shift towards renting homes over purchasing, a new report from real estate firm JLL said.
The coronavirus pandemic has caused unprecedented economic fallout across the world, with experts previously commenting that the downturn will likely be the worst in nearly a century. This has had an impact on the Saudi property sector, with residential property prices set to increase in the short-to-mid-term as projects get delayed and higher VAT drives costs up, the report said.
“A reprioritization of household spending will continue, and we expect to see a shift towards the rental market as it becomes comparatively more attractive and cost competitive. This could see performance trends reverse, whereby sale prices begin to slowdown and rental rates will pick up in the longer-term,” Dana Salbak, head of research at JLL MENA said in a statement.
Saudi Arabian authorities have already moved to counter the economic impact of the coronavirus, with the hike in value-added-tax (VAT) to 15 percent one part of the Kingdom’s multifaceted approach to weathering the COVID-19 storm.
In mid-May, the government announced a wave of enormous cost-cutting programs in tandem with the VAT increase, the focus of which has been on protecting the health care and livelihoods of Saudi Arabians, Finance Minister Mohammed al-Jadaan said at the time.
“These are the priorities: The health care of people and the livelihood of people, and we want to make sure that we maintain our fiscal strength so that as the economy gets out of the lockdown, we are able to support the economy,” al-Jadaan told Bloomberg in a telephone interview.
In relation to property, authorities have agreed to absorb the increased VAT cost for first time buyers for units worth 850,000 riyals ($226,666) or less in a bid to keep people buying homes.
“The increased VAT could also potentially drive land prices down from their current inflated levels. If developers are unable to buy land at current rates, the market would balance itself at lower levels of land pricing. Ironically, an increased tax could therefore actually benefit developers by reducing their overall cost of development,” Salbak added.