Saudis forced to rent after rule on bigger down payments

A government move in November 2014 means that buyers need a 30 per cent down payment in a market where most people cannot afford their own home.

New apartments advertised for rental stand in the Al Qasr residential project, built by Dar Al-Arkan Real Estate Development Co., in Riyadh, Saudi Arabia, on Wednesday, Oct. 13, 2010. Builders in the Show more

Thousands of Saudis hoping to buy their own homes are being forced to rent because they can’t afford to put down the large deposits required by new government regulations.

Housing rents in the Saudi capital Riyadh grew 6 per cent in the year to November while in Jeddah, the kingdom’s second-largest city, rents rose by 11 per cent over the same period as would-be buyers were forced to rent.

According to a new report from JLL, villa prices in Riyadh fell 6 per cent in 2015. In Jeddah, although prices increased by an average of 6 per cent, this came from a very low base.

JLL said that the reason for the changes was a government move in November 2014 to cap loan-to-value ratios on mort­gages. It means that buyers need a 30 per cent down payment in a market where most people cannot afford their own home.

The news comes after Saudi ministry of justice figures reported that the number of housing sales in Jeddah fell 19 per cent in the year to November 2015 compared with the year-earlier period, and in Riy­adh they fell by 11 per cent over the same period.

“We have witnessed a shifting demand in the residential market in both Riyadh and Jeddah, as the trend moves towards property rentals from sales,” said Jamil Ghaznawi, the national director of JLL KSA.

According to JLL there is a shortfall of about 400,000 afford­able units across the coun­try, while just 30 per cent of Saudis own their own homes compared with a global average of 70 per cent.

Hardly any parts of either Riyadh or Jeddah had homes deemed “affordable” for middle-income families – households earning between 6,000 and 20,000 riyals per month, or 62 per cent of the population.

A “white land tax” on undeveloped land was announced in October and will come into force in June to prevent owners sitting on land, with the levy recycled into affordable schemes. However, so far few details about how this will work have been released.

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