Saudi real estate prices fall 8.7% in 2016

Saudi Arabian real estate prices declined 8.7 per cent last year, according to official data released on Monday, showing heavy pressure on the economy from government austerity measures in response to low oil prices.

Residential prices dropped 7.4 per cent in the fourth quarter of 2016 compared to a year earlier, the General Authority for Statistics’ Real Estate Price Index showed, while commercial real estate prices tumbled 12.3 per cent.

Quarter-on-quarter, residential prices slid 3.4 per cent and commercial prices fell 4.1 per cent at the end of 2016. It was the first time that the government had conducted such a detailed study of movements in real estate prices, analysts said.

Cuts in public spending last year, including in financial allowances for public sector workers, hurt many Saudis’ purchasing power.

A government plan to introduce a tax on undeveloped urban land this year, to deter hoarding of land, has also pushed down prices.

However, the government has announced a modestly expansionary budget for 2017, holding off on fresh austerity measures for now. That means the non-oil part of the economy may pick up slightly.

The drop in real estate prices “is probably a good thing for the average Saudi,” said James Reeve, deputy chief economist at Samba Financial Group in London. Saudis have long faced a housing shortgage caused by limited supply and rising demand due to population growth.

“But with the remuneration changes, what they can afford has also come down,” he added.