Around 1.9 million expats have left Saudi Arabia in the past two years, with their exit taking a toll on the country's real estate market, a recent report found.
Published by S&P Global Ratings, the report points out to a section from Jones Lang LaSalle's (JLL) third-quarter 2019 report that "revealed sales prices have declined 5-6 percent year-on-year and rentals by 1 percent."
The study by S&P shows that the kingdom's "overall market is suffering from declining prices." The latter is mainly linked to the recent exit of expats from the kingdom as its non-Saudi workforce decreases in numbers.
However, it wasn't all bad news as the report did state that both the demand and supply for affordable units are expected to increase in the future.
Expats largely affect the country's real estate when it comes to rentals in compounds and building blocks.
In the past few months, hundreds of thousands of them left the country due to a campaign against residency law violators. The scheme launched in 2017 under the name "Nation Without Violators" under which a >crackdown on illegal workers and those violating the kingdom's laws took place.
Another factor driving foreign workers out of Saudi Arabia is the fact that the local government has been working on nationalizing (aka >Saudizing) several local sectors under Crown Prince Mohammed bin Salman's ambitious blueprint Vision 2030.
This comes in a bid to tackle chronically high unemployment rates among its nationals. In the past few years, the kingdom announced it will fully >Saudize entire industries including retail and public services. With that, the contracts of millions of expat workers ended up not being renewed.
Will the kingdom's real estate market pick up pace?
The latest study estimates that Saudi Arabia's real GDP will shrink by about 0.4 percent this year, mainly due to a fall in "oil production tied to the OPEC deal and the foreign attacks on two oil production facilities."
This and several other local instability factors will also be affecting the nation's real estate market, though not for long. That's because the kingdom is already working on implementing reforms that will positively impact the market. These include boosting levels of the private sector's role in the economy, encouraging women to take part in the country's workforce, and significantly improving education levels.
The country has also been successfully working on diversifying its oil-dependent economy by tapping into the >tourism, entertainment, and sports sectors like it never did before.
These positive moves on part of the country's leaders and government are set to guarantee a push for the Saudi real estate sector. This is already evident in the rise in the number of homes owned by Saudis, which jumped to 60 percent this year.
In her statement on the report's findings, S&P Global Ratings credit analyst Sapna Jagtiani confirmed that there's room for improvement and success, saying:
"The key difference between Saudi Arabia and neighboring countries is the sheer size of the local population and favorable demographics. We believe Saudi Arabia has the opportunity to better manage property supply than its neighbors."
Jagtiani added that the kingdom is able to plan for new concepts in real estate including "co-working spaces and co-living developments."