Severe housing shortage in Saudi

The Saudi Arabian property market is currently experiencing a severe housing shortage. If additional units aren't made available soon, the kingdom could be in for more inflation.

Last month, inflation in Saudi Arabia hit a 27-year high. Government spending and housing shortages have caused rental rates to skyrocket. Despite this, there is little chance that inflation numbers will fall in the short term. Currently the nation is the world's largest exporter of oil. Inflation rose to 7% but rental prices rose almost 17%. The rise in rental prices is expected to continue throughout 2008 unless developers can help supply catch up to demand.

The coming year promises to see rental prices start to decline. Already this year billions of dollars are being spent on construction projects, both residential and commercial. When these new spaces are made available, rental prices should be reflected in the increased supply. Of interest is the fact that the Saudi riyal is set at a fixed rate based on the US dollar. Some are concerned that with the US economy faltering the riyal should be re-evaluated. Saudi policy makers currently have no such plans as they feel that it still serves their economic interests.

The next twelve years could see the Saudi Arabia property market infused with over US$240 billion. This equates to almost 2 million more units by the year 2020, with the majority of the investments being directed into residential markets. Plans to drastically increase available units are a response to predictions of increased demand. Real estate legislation allowing foreigners to own property as well as the introduction of mortgage laws will entice many investors to the market. Whether this will be enough, though, remains to be seen. Currently the kingdom has over five million units available. It is hoped that the planned introduction of 2 million additional units by 2020 will be enough to keep inflation at bay. The increase in rental prices in being considered the primary factor in the kingdoms high inflation.