Construction boom fails to contain exorbitant hikes in house rents

Housing rent is soaring in Jeddah and Makkah despite a big boom in the construction industry. It is estimated more than 60,000 units have been added to the residential sector over the last two years in the two cities. However, this has failed to rein in skyrocketing rent rates, according to Al-Eqtisadiah business daily. Prominent real estate expert and chairman of the real estate committee at Jeddah Chamber of Commerce and Industry Awad Al-Zahrani said the municipal authority’s decision to allow the construction of upper floors for the existing multi-story buildings has led to a boom in the industry. This enabled landlords to build additional floors without meeting any costs for land and foundation work. However, they also increased rent instead of reducing their rates, he claimed. According to Al-Zahrani, permission has been granted to build additional floors in most residential districts in Jeddah. For example, nearly 70 percent of districts located south of Hera Street in north Jeddah took advantage of this. Many landlords built additional floors, and the main beneficiaries were owners of two-story buildings allowed to build two additional floors. Al-Zahrani said the demand for housing units would continue rising while taking into account of the fact about 70 percent of Saudi youths are under the age of 30. Sooner or later, they will enter the market with a strong demand for homes of various categories, he said. He said granting permission to build additional floors in all districts in Jeddah may lead to a fall of 30 percent in rent rates. Adeeb Idris, a real estate investor in Makkah, said several landlords in Makkah have built additional floors, taking advantage of the municipality’s decision in this regard. He said: “The granting of permission is based on several conditions, such as capacity and standards of the building and its location. “It helped many landlords to create additional floors given the scarcity of properties in the holy city.” Idris noted there has been no fall in rent despite the construction of tens of thousands of housing units. “There was an increase of more than 100 percent in the rent of homes in Makkah and other major cities in the Kingdom over the last five years.” He said at least 35,000 new homes and apartment buildings are expected to enter the real estate market in Makkah in the near future.