The Saudi Arabian property market is likely to weaken in the short to medium term with concerns that an array of expat levies could reverse the traditional migration trend. When you bear in mind this is an economy which has struggled to move since the 2014 oil price collapse it is bizarre in the extreme to begin penalising expat workers who bring much-needed expenditure to the region. So, are concerns about the Saudi Arabian property market valid or are they wide of the mark?
Saudi Arabian property prices
Research consultancy JLL has issued a report confirming the sale price of villas and apartments in the capital Riyadh have fallen by 3% on an annualised basis since 2014. Other areas of Saudi Arabia have also shown a marked decline in new office rental deals which is by definition a good indicator of business activity. So, we have property prices falling, businesses leasing less new office space and a slow ramping up of expat levies.
New regulations will force expats to pay an additional $26 a month per dependent with expectations that this will raise an additional $700 million for the Saudi Arabian government in year one. We already know that year two and year three will see an increase in the expat levy so this will effectively starve the Saudi Arabian economy and property market of $700 million plus per annum. When you bear in mind the recent performance of Saudi Arabian property prices a scheme to drain yet more money from the market just seems totally bizarre.
There are now serious concerns that up to 2.5 million expats living in Saudi Arabia, out of a total population of 33 million, could move away by the end of 2018. This would equate to around 25% of foreign workers in Saudi Arabia and if the government keeps milking this social group then the situation will only get worse. When you bear in mind the fact that the expat working community is a vital part of the Saudi Arabian economy and a heavy investor in Saudi Arabian property, this looks like biting the hand that feeds you?
A reduction in the number of more affluent expats would certainly have an impact upon demand for rental properties with some suggesting a doomsday scenario where rental prices could fall by as much as 50%. The impact of so-called “reverse migration” should not be underestimated because this can lead to a self-fulfilling prophecy where expats avoid Saudi Arabia and look to pastures new.
Historically, like many states in the area, Saudi Arabia has depended upon oil income to fund an economy which struggles with natural growth – much of the past growth has been government spending induced. The idea of favouring Saudi Arabian workers over expats is not new but with an acute housing shortage, 1.5 million Saudis are currently on the government waiting-list, this is not exactly currying favour with overseas investors looking for a home for their money.
Overall the Saudi Arabian government budget is under pressure and we know there is a housing shortage which makes the ongoing attack on expat workers and expat investors even more bizarre.