The residential property market in Saudi Arabia remained resilient despite pressure from lower oil prices and and reduced government spending, said a report.

The kingdom's prime markets were doing fine with capital Riyadh maintaining steady performance, and Jeddah showing continued growth momentum, according to real estate expert JLL.

In Riyadh, approximately 17,000 units entered the market last year, the majority of which were standalone villas or small apartment buildings (with no projects exceeding 150 units), stated JLL in  its annual review of the Saudi Arabia Real Estate Market for 2015.

Jamil Ghaznawi, the national director and country head of JLL (Saudi Arabia), said: "We have witnessed a shifting demand in the residential market in both Riyadh and Jeddah, as the trend moves towards property rentals from sales."

"Residential transactions declined by five per cent in the year-to-November 2015 compared to the same period in the previous year. We expect rental demand to continue in 2016 but at a slower rate in comparison to 2015, while little or no change is likely in the sales market in 2016," stated Ghaznawi.

"However, this situation may change once the regulations surrounding the ‘white land tax’ are released," he added.

Looking ahead at the upcoming supply, JLL said there are a number of large-scale projects including Green Oasis and the second phase of Manazil Qurdoba, which will deliver 930 and 700 residential units respectively.

While 28,000 units could potentially be completed in Riyadh during 2016, actual deliveries are likely to be significantly less.

Around 2,250 land plots were handed over to end users within the Eskan Airport project in Riyadh in 2015. Apart from this development, there are no other major planned or under-construction affordable housing projects in Riyadh, it stated.

Ghaznawi pointed out that lower oil prices have put pressure on economic growth, liquidity, government budgets, the stock market and asset prices.

"This scenario has led to cuts in subsidies and reduced government spending and has also impacted the financing of real estate projects. A more selective approach can be seen, with an increased focus on critical infrastructure and affordable housing projects," he stated.

On the other hand, there is reduced spending on less urgent projects, resulting in delays or scaling back of many projects, he added.

On the hospitality sector, JLL said with new hotels opening in Riyadh this year, there may be downward pressure on ADRs and occupancy rates due to increasing competition.

However, the Jeddah hotel market is likely to remain relatively stable in the near to medium term, the property expert said in the review.

Even though there is new supply of Jeddah hotels, there is strong demand to absorb any new supply, as result of religious tourism and higher occupancies during school and public holidays, it stated.

On the office market, JLL said Jeddah has witnessed a steady and healthy growth along with new supply of quality space. On the other hand, Riyadh rentals have remained relatively stable as occupiers exercised relative caution in terms of expansion as the economy slows down.

Looking into 2016 and beyond, Ghaznawi remarked: "We are entering a very challenging period as oil touches new lows and the government cuts spending and subsidies. It is encouraging to see that the government is taking steps to diversify the Saudi economy."

"Such structural initiatives will have long-term benefits and will contribute towards the positive development of the Saudi real estate market. Moreover, new laws allowing full foreign ownership of wholesale and retail business will attract foreign investment, which will ultimately benefit the real estate market. And finally, religious tourism will remain a growth sector in Jeddah and the Western region, and could support new hospitality supply," he added.-TradeArabia News Service