Looking back a year ago into the plans of the Saudi Government to effectively earn huge sums of money by taxing expatriates in one form or another, everyone but the government saw the toll it would take, not only with expatriates but with the local economy as well.
Fast forward to today, a number of expatriates have opted to send their families back home following the imposition of the dependents' annual fees than began July 1st. This has resulted in an unusually large number of apartments being vacated with no new tenants coming in.
Plenty of new apartments, lesser and lesser renters
In what seems to be the beginning of a domino effect, real estate prices in the Eastern Province have crashed, causing a nervous slowdown in the construction industry and effectively bringing down with it the price of construction materials.
According to real estate agencies, prices of land and houses have been on a continuous downward trend since the end of 2016. The market was hoping to see stability in prices at the beginning of this year. But the first quarter results showed an even more worsening figure.
For Rent signs are seen everywhere as more and more expats leave the kingdom.
According to trade analysts and real estate agents, prime land rates in Al-Khobar and Dammam in the Eastern Province witnessed a sharp decline of around 18%. The rates were even lower in remote areas, going down by more than 20%.
The fall in the prices began about six months ago when nervous expatriates accepted the fact that the government was hell-bent in imposing the expat fees as well as new taxes, and that they would have to face the brunt of it.
Alongside the decline in real estate price, Saudi Arabia has also witnessed a sharp drop in house rents in the past 8 months. This is mostly due to the fact that a majority of renters are expats, mainly because they are not allowed to purchase real estate properties in the kingdom.
According to one estimate, house rents in prime locations in Al- Khobar and Dammam have gone down by 15 to 20% in a country where just a few years ago, rents were expected to increase annually. Real estate agents fear further slide in rental rates as there are more vacant houses and less takers - this after the government, in a bid to stabilize the then increasing rental rates, pressured landowners to develop unused lots or risk a government buyout.
According to one estimate, house rents in prime locations in Al- Khobar and Dammam have gone down by 15 to 20% in a country where just a few years ago, rents were expected to increase annually. Real estate agents fear further slide in rental rates as there are more vacant houses and less takers - this after the government, in a bid to stabilize the then increasing rental rates, pressured landowners to develop unused lots or risk a government buyout.
Commercial spaces are also affected as more and more expats leave homes and businesses due to policies seen as unfavourable, even aggressive, against expats.
"A four-room apartment which was rented for SR24,000 a year is now offered at SR22,000 or less," one real estate agent is quoted as saying. Similarly flats in Dammam Housing (Iskan), which were fetching rent as high as SR35,000 a year until last year, are now lying vacant with a rent tag of SR25,000 per annum.
Agents say the rent prices are expected to come further down as many more expatriates will send their families and dependents to their respective homes. The major reason real estate brokers cited was nervousness in the market over large-scale exodus of expatriates from the Kingdom.
No doubt that new fee on expatriates, increase in visa fee and other expat-related hikes will initially bring in huge revenue and will also help in Saudization campaign, but economists warn that the flight of expatriate workers is disturbing the projected population ratio, thus affecting demand. The impact will not be restricted to real estate but will spread to consumer items, services and even industrial products.
The declining land prices and house rents have already impacted the construction industry adversely. Construction companies are getting less and less contracts, forcing them to lay-off a huge number of employees. Some companies have totally closed shop. Since construction on several projects has either slowed down or completely stopped, the construction-related material industry has also suffered a major setback.
The worst affected is the cement industry which has witnessed lowest price decline since 2008. According to market retail rate a metric ton of cement that was costing SR240 is now costing between SR130-170. The high quality Sulfur Resistant Cement, which was being sold in retail market for SR260 per metric ton, has gone down to SR150-190.
The larger cement companies including Yamama Cement, Eastern Cement, Qassim Cement have experienced a decline in profit from 46 percent to 81 percent in the first six months of 2017.
Industry expert say that these declines will eventually impact other industries as well and unless some drastic corrective measures are taken, the situation is likely to worsen further.
sources: Saudi Gazette
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