GCC housing prices strengthen

Rental and sales prices for apartments and villas have seen a general increase across the GCC, with Doha and Manama the only markets where demand remains weak. Published in MEED, 18 March 2014

A recent report by the UK-based Economist Intelligence Unit compared prices in 140 cities around the world and named Jeddah and Riyadh among the 10 cheapest. Its Worldwide Cost of Living 2014 report placed the Saudi cities alongside the likes of Mumbai, Karachi and Bucharest, due to their combination of cheap petrol, bread and other basics.

That low ranking may have come as a surprise to some residents of those cities, where the cost and availability of housing are big issues these days. The government has responded with plans to build tens of thousands of affordable homes and is also offering soft loans to locals to help them on to the housing ladder, but the problem is far from resolved.

“High real estate prices in Riyadh are an issue,” says one banker in the Saudi capital. “It’s certainly expensive compared with what it was 10 years ago.”

Reasonable prices

Yet compared with the rest of the Gulf, the cost of accommodation in the kingdom’s two main cities still looks fairly reasonable. To rent a two-bedroom apartment in the capital, tenants can expect to pay somewhere between $7,000 and $13,500 a year. Prices in Jeddah tend to be slightly higher, but even so both are cheaper than any other major city around the GCC.

The problem for the average Saudi national is that prices have been rising quickly, unemployment is high and GDP per capita is lower than elsewhere in the region.

Another issue in Riyadh is that few locals want to live in an apartment, according to a housing finance executive. Instead, most would prefer a villa; as a result, villa prices in Riyadh are closer to the rest of the region. A four-bedroom villa costs on average $32,000 a year to rent in the city, according to US property consultancy JLL (formerly Jones Lang LaSalle), which is within the range for Muscat and Doha and not far off the starting price in Dubai.

Average prices can disguise large disparities in the quality and size of a property, and real estate is about location more than anything else. Generally in Riyadh, the cheapest property is found in the south of the city, while the most expensive real estate is in the centre and to the west and north. In Jeddah, areas in the centre and west of the city generally command the highest prices.

In Abu Dhabi, the gap between the most sought-after and the most overlooked areas can also be vast. The average rent for a two-bedroom apartment in the emirate is AED140,000 ($38,000) a year, according to JLL, but real estate agents offer apartments of that size for AED50,000 a year in the Khalidiya and Bateen areas of Abu Dhabi Island and for AED190,000 a year in the Raha Beach and Saadiyat Island neighbourhoods.

Prices in the UAE are rising quickly these days. According to local real estate consultancy Asteco, average apartment sales prices in Abu Dhabi rose 29 per cent over the course of 2013, with buyers encouraged by expectations of further growth in rental rates and a limited amount of new supply hitting the market in the short term. The same is broadly true of villa prices, with increases ranging from 13 per cent in the Golf Gardens development to 38 per cent in Al-Reef Villas.

In neighbouring Dubai, the growth is even more pronounced. According to Asteco, apartment sales prices rose by between 39 per cent and 83 per cent in the emirate last year. The relatively cheap Discovery Gardens district saw prices grow the most, up 83 per cent, but more expensive areas also saw strong rises. Palm Jumeirah apartments were up 43 per cent year-on-year and prices in the Downtown Dubai district increased 69 per cent. The rise in villa prices ranged from 22 per cent in The Springs to 67 per cent on Palm Jumeirah.

Such gains were matched in the rental market, with apartment rents in Dubai up by an average of 50 per cent and villas posting a gain of 20 per cent over the 12-month period.

Dubai growth

According to a recent report by UK property consultancy Knight Frank, house prices in Dubai grew more than in any other city around the world last year. The cost of accommodation in the emirate remains about 25 per cent below the peak level before the crash in 2008, so there is still room for the market to expand. Dubai’s recent win in the race to host the Expo 2020, combined with other improvements in the wider economy, means the cost of housing is predicted to increase further in the coming years. Knight Frank says prices could gain a further 10-15 per cent this year.

The market is far less frothy in other Gulf cities. Doha has had a mismatch between supply and demand for several years, which has seen rental prices fall by 27 per cent between 2008 and 2012 and sales prices by 38 per cent, according to the US’ Colliers International. However, levels now appear to be stabilising. In 2008, a two-bedroom apartment in The Pearl development cost about QR20,000 ($5,495) a month to rent, according to the local Al-Asmakh Real Estate Development, but such units can now be obtained for about QR15,000 a month.

As is the case in other cities, new developments in Qatar often command a premium, which is why The Pearl is the most expensive place to live in Doha. Rental prices elsewhere in the city are lower, but on the whole are similar to those in Dubai and Abu Dhabi. The rent for a two-bedroom apartment in Doha ranges from about $14,500 to a little more than $71,000 a year, while a four-bedroom villa will cost anything between $30,000 and $130,000.

Oman expansion

In Muscat, property firms are predicting steady growth in demand in the near future, as a result of more workers moving into the area to complete civil infrastructure schemes and oil and gas projects. Prices in most areas are still below where they were in 2010, but are rising. According to Colliers, the rental price of a two-bedroom apartment in the Shatti al-Qurum district rose by almost 7 per cent in the year to September 2013 to RO800 ($2,080) a month, while in the Al-Khuwair area, the cost was up 12.5 per cent to RO450 a month. The price of four-bedroom villas has remained steady over the past few years, however. The contrasting trends in villa and apartment prices may be an indication that more single expatriates are arriving to work and fewer are coming with families.

The market in Bahrain has been undergoing a tougher time, as political instability continues with little sign of a long-term settlement between the government and opposition groups. Rental prices have been stagnant for the past two years, according to UK real estate agency Cluttons. At the end of September last year, prices were up by just 2 per cent year-on-year. Even those gains are quite specific. According to Cluttons, most of the increases have come from high-end developments aimed at the expatriate market.

Other real estate consultancies such as CBRE Bahrain say demand for some types of accommodation is still declining, particularly in the northwest of Bahrain, known for its residential compounds with villas aimed at families. The firm attributes this trend in part to the decision by an increasing number of Bahrain-based companies to put more of their staff on all-inclusive contracts and move away from the additional commitments towards flights, school fees and accommodation that they offered in the past. That makes it a less attractive prospect to those with families.

Kuwait spending

Further up the Gulf, in Kuwait, the property market continues to be buoyed by high government spending, as does the economy as a whole. That helps to explain why some prices are relatively high, compared with other GCC countries. Two-bedroom apartment rents average between $14,000 and $30,000 a year, depending on the area, which is similar to the levels in other second-tier Gulf capitals such as Manama and Muscat. However, villa rents are more expensive, ranging from $40,000 to more than $120,000 a year, which puts Kuwait in the same league as Dubai and Doha.

Such high prices, combined with Kuwait’s more conservative nature and its subdued private sector, mean that, for many foreign workers at least, it is cities such as Dubai and Doha that will continue to be the biggest draw in the future.