- Major social and economic reforms pave way for new avenues of investment and growth in the real estate sector
The introduction of social and economic reforms in 2017 represented a key turning point for the Kingdom of Saudi Arabia with new avenues of investment now paving the way for positive economic and real estate growth in what is set to be a year of ‘implementation’ ahead, says JLL.
Oxford Economics forecasts a return to positive real GDP growth (2%) in 2018, following a minor contraction of 0.7% recorded in 2017. According to JLL’s KSA real estate report, this has resulted in many investors, entrepreneurs and businesses now exploring new opportunities and areas of investment as a result of the significant reforms introduced in 2017.
The government also took measures to reduce the fiscal debt in 2017 and introduced a stimulus package, waiving fees for small businesses and investors, which in turn will bolster housing construction. The resulting 2018 budget includes the largest ever proposed spending of SAR 978 billion, a 5.6% increase compared to actual spending in 2017.
Landmark changes in the Kingdom in 2017 such as lifting the ban on women driving will see a positive surge in demand in not only the auto industry, but its support sectors. This and other reforms should continue to translate into positive economic growth.
The Public Investment Fund (PIF) announced a number of projects in 2017, aimed at enhancing the Kingdom’s tourism and entertainment sector, extending ample opportunity for the hotel and retail sectors in the year ahead. Major investment opportunities are also on the horizon including NEOM, which is backed by USD 500 billion from the PIF. If successful, the project could become a major hub for population and economic activity.
“With the introduction of various social and economic reforms in Saudi Arabia, we embraced the transitional phase of the economy in 2017, in line with the National Transformation Program and the Saudi Vision 2030,” said Eng. Ibrahim Albuloushi, Country Head, KSA, JLL.
“The year ahead focuses on the implementation phase of the reforms highlighting growth in the tourism sector where the hospitality and retail sectors are poised to benefit, as the government eases visa requirements for tourists,” he added.
With the implementation of VAT at 5% at the start of 2018, cost of buying goods and services will increase. The sale of commercial properties and residential sales will be taxed (although sales to first home buyers up to SAR 850,000 will be exempt). Although residential rents will be exempt, hospitality and commercial rents will be subject to VAT.
The latter half of the year saw further home financing options introduced, with the PIF and the Ministry of Housing partnering to create the Saudi Real Estate Refinance Company in October 2017. This partnership aims to increase home ownership in Saudi to 52% by 2020.
Seven Real Estate Investment Traded Funds (REITs) were listed in 2017, bringing the total number of funds now trading on the Saud’s Stock Exchange to eight. REITs benefit both developers and investors by expanding the former’s investor base, and providing the latter with smaller scale investment opportunities in the real estate sector. The success to date of listed REITs, and the strong market appetite for them, will see further REITs listed in 2018, with the CMA’s recently approving at least five further REITs.