World Economy

Saudi Housing Prices to Plunge 30% as Oil Sinks

Saudi Housing Prices to Plunge 30% as Oil SinksSaudi Housing Prices to Plunge 30% as Oil Sinks

The housing prices in Saudi Arabia will fall about 30 percent due to falling oil prices, distribution of more low-cost homes and the imposition of Zakat on vacant land, said a report.

The real estate developers and owners are facing pressure to reduce prices, reported the Arab News, citing a real estate expert.

“The real estate market is facing an unprecedented recession and many agents have spoken about falling sales,” Bandar Al Aboud was quoted as saying in the report. This would result in prices reaching reasonable levels, he added.

Al Aboud said commercial banks in the country too have played a role in hiking prices by granting huge amounts to citizens in long-term housing loans. “This increased liquidity and led to skyrocketing prices,” he added.

According to him, the new real estate financing law, which has been approved by the Saudi Arabian Monetary Agency, would solve the country’s housing problem.

The government decision to impose Zakat on vacant land inside cities would help bring prices down, he said. About 70 percent of plots in the capital Riyadh were in this category, with 60 percent in the Eastern Province and 50 percent in Qassim, he added.

  spending high

The Saudi budget announced late this December keeps domestic and foreign spending high even as oil revenues plummet, a reflection of the royal family’s concern about internal unrest four years after the Arab Spring. Hard choices are deferred for now.

The Saudi budget projects spending for next year at $229 billion and revenues at $190 billion, according to the Saudi Gazette. The estimated deficit will be $38.6 billion. Spending actually will rise slightly over last year while revenue has fallen due to lower oil prices. The deficit will be the largest in the country’s history.

Finance Minister Ibrahim Al Assaf has said the deficit will be funded by drawing down the country’s reserves, estimated at $750 billion or more. King Abdullah bin Abdulaziz has already authorized drawing on reserves to keep spending high. The king has also promised to keep pumping around 9.6 million barrels per day.

During previous periods of falling oil prices the kingdom has cut spending. In 1998, for example, Abdullah said Saudis had to change their lifestyle to recognize that “the time of abundance is over.” In 2009, the Saudis cut back on government jobs and public projects. In the worst crisis in the 1980s per capita income fell by roughly 50%.