Tax reduction is expected to encourage first time home buyers
JLL has stated that Saudi Arabia’s mortgage market will likely maintain its momentum following the government’s recent move to exempt property deals from 15% value-added tax (VAT), and instead impose a new 5% tax on transactions.
The government has also scrapped tax from first-time home-buyers of properties worth up to $266,401, said JLL in its Q3 KSA real estate market performance report. The move is expected to encourage first time home buyers and support the Vision 2030 goal of increasing homeownership to 60% by the end of 2020 and 70% by the end of 2030.
JLL noted that Q3 showed strong construction activity in the residential market, with around 10,000 units handed over in Riyadh and Jeddah. This brings the total residential supply to 1.3m and 834,000 in Riyadh and Jeddah respectively. In terms of performance, the firm pointed out that residential sale prices in Riyadh registered an annual increase of 2% for apartments and villas.
“In addition to the positivity injected by the recent government measures, the residential sector also showed strong construction activity in Q3 2020 with around 10,000 units handed over in Riyadh and Jeddah. This brings the total residential supply to 1.3 million and 834,000 in Riyadh and Jeddah respectively,” explained Dana Salbak, head of research for JLL MENA.
The positive performance was supported by the various mortgage products; H1 2020 registered a 50% growth in the number of loans and a 49% growth in loan values compared to the same period last year, said the expert citing a SAMA report. Rental rates registered annual declines of 1% for apartments and villas by comparison.
The overall performance of the residential market in Jeddah remained subdued in Q3 2020 as sale prices and rental rates declined 6% and 5% respectively, the report stated.
She concluded, “Looking ahead, residential rental rates in the Kingdom are expected to remain under pressure in the short-to-medium term, namely on the back of wider macroeconomic factors such as the growth in unemployment rates, and consequent contraction in household incomes.”