Demand for homes in Jeddah fell in 2009 compared to last year, driving prices down by as much as 10 percent over the past six months, but prices could rise again towards the end of the year, Jones Lang LaSalle said.

Jeddah, Saudi Arabia's second largest city, has 807,000 homes, with an additional 30,000 in the pipeline that are expected to be delivered over the next five years, with some delays, the real estate service company said on Tuesday.

"The supply of units is increasing faster than demand ...however, we do not see significant oversupply due to expected construction delays in the planned mega residential communities," the report said.

Prices could start to rise again towards the end of 2009 as the market absorbs the stock offered for sale, the report said.

Jeddah's population has tripled in the past 20 years to 3.4 million and the city has a long term strategy of providing more housing for its fast growing population, but falling demand due to the financial crisis is resulting in oversupply.

The city's retail and office markets are also oversupplied, the report said.       

"Demand has been moderate so far in 2009 and has failed to keep pace with the steady supply of new office buildings entering the market...it will take the market some time to absorb what it has just been delivered," the report said.

Over 300,000 sq m of new offices are expected to be delivered before 2011, it said.

"It is expected to take between one and two years for the market to absorb all the newly completed retail space," the report added. - Reuters