Arabian Business reported that house prices in Saudi Arabia are likely to increase by up to 5% over the next 2 years.

The investment bank Rasmala said that it was cautiously optimistic on the kingdom's real estate market due to an uncertain global economy and inherent structural challenges facing the Saudi economy. It added that "We expect house prices to appreciate between 0% and 5% annually in the next two years. We believe the Saudi real estate sector will experience sustained demand pressures, partially offset by affordability, financing, youth unemployment challenges and global macro uncertainty."

Saudi Arabia's real estate sector is the largest among the countries of the Gulf Cooperation Council, with about 4.6 million residential units and pent up demand for 0.4 million units as of end 2009.

Although the industry view is positive on house prices in urban property markets such as Riyadh, Jeddah, Makkah, Madinah and the Eastern Province, Rasmala said it expected structural challenges to hamper robust property growth in the next 12 months.

It said that "We expect the government and the private sector to systematically provide an appropriate regulatory and financing framework to bridge the demand supply gap while controlling potential speculative growth, although we believe this may take several years."

Saudi Arabia's real estate market has emerged relatively unscathed from the effects of the global economic slowdown which saw house prices in other parts of the GCC, particularly Dubai, nosedive.

Rasmala added that "We believe investors will find relatively promising risk reward in property stocks exhibiting low gearing and cash flow risk coupled with higher value generation from recurring revenues."

In June 2011, the head of Dubai based developer Emaar's Middle East unit said Saudi Arabia will miss its goals for infrastructure and affordable housing unless it streamlines rules that are delaying projects.

Mr Ahmed Al Kulli chairman of Emaar Middle East said that "Infrastructure and real estate projects in Saudi Arabia are typically very slow due to regulations that are very time consuming."

Saudi King Mr Abdullah has pledged to spend more than USD 82 billion on housing development to help meet the needs of a growing population.

The government is building four new metropolitan areas as part of a USD 400 billion plan to invest in infrastructure and make the country less dependent on oil.

(Sourced from www.arabianbusiness.com)