House prices in Saudi rise on low supply, land costs

Jeddah: A shortage of housing and rising land costs are causing house prices in Saudi Arabia's two largest cities to rise while an increase in new office space will push rental rates lower in Riyadh, a report said Sunday.

"The sheer pressure of population growth, increases in construction costs and the shortfall in development are likely to force house prices slightly higher in Riyadh in the short term," CB Richard Ellis said in a report. House prices in Saudi Arabia's second largest city, Jeddah, have also risen in the past 12 months as the city of 3.5 million faces a shortage of around 300,000 homes, the report said.

While most of the demand for housing in the kingdom comes from low income individuals, the absence of a mortgage law and lack of financing is preventing developers from building for that segment of the population.

With a growing population of over 25 million, the country will need to build one million new homes by 2014, HSBC said last year.