Dubai: For developers, Saudi Arabia’s prime residential market of Riyadh is the best place to be with demand for homes easily outstripping short- to medium-term supply. This is despite the fact that there is a marked increase in building permits — up by 319 per cent over the 10-year period — being issued for projects in Riyadh.

“The capital has a requirement for around 50,000 housing units per annum over the next five years and has an estimated housing inventory of just 1.15 million units,” says a new report from the consultancy Knight Frank. “However, due to construction delays and the lack of available land, developers have found it increasingly difficult to bridge the gap between supply and demand.

“What’s more, although there are a number of large housing schemes planned to be completed in the short term, there is unlikely to be enough capacity in the system to deliver the required number of units to satiate current levels of pent up demand.”

And where supply is at a disadvantage playing catch up with demand, that lays the ground for prices to reach for the skies. It is happening too.

“Analysis shows that high land values have contributed to an escalation in residential sales values,” the report said. “Indeed, with land values in Riyadh accounting for between 45-50 per cent of total development costs, developers have been targeting the middle to upper-end of the market in order to achieve their requisite development margins.”

Dubai’s Damac Properties has two live tower projects in Riyadh, on the prime Kind Fahd Road. “Damac Esclusiva will offer luxury serviced hotel apartments with interior furnishings by Fendi Casa, while Damac Tower by Paramount serviced apartments will bring to life the California cool and Hollywood glamour synonymous with the movie producer (Paramount Studios) from the past century,” said Niall McLoughlin, Senior Vice-President at the developer.

“Construction is already well under way on Damac Tower — concrete slab work has reached the 35th level, with blockwork at level 28. Installation of the façade works is already under way. We have similar good progress on Esclusiva, where the block work is a level 26 with ID works already under way alongside the façade works.

“Our first project Al Jawharah [Jeddah] sold out in good time and we are experiencing a similar level of interest in our Riyadh projects.”

The Knight Frank report foresees more activity being taken up by outside developers. “We expect residential prices to continue to rise in Riyadh as the city’s rising population exacerbates the already acute housing shortage. Beyond that period, improving infrastructure, as well as new international developers entering the market, should boost construction activity and thus housing completions.”