She adds: “Whilst it is too early to quantify the effect on capital values, land values, and rental rates, an analysis of international benchmarks shows that mass transit systems have the potential to be a strong driver for growth as a result of improved connectivity.”
Mass-transport systems, according to Knight Frank’s report, are globally known to have boosted real estate values, “from continuously changing cities such as Beijing and Mumbai to comparatively developed cities, such as London”. These schemes, the report explains, not only impact real estate positively, but also reduce congestion and encourage “the development of new business districts and lifestyle destinations”.
“[In] Riyadh, where the 176 km metro – complemented by a new 24-route bus network – is expected to be operational in the coming 18 months, the impact on the city is due to be equally wide-ranging both in terms of social and economic development,” Majdalani says.
“With Riyadh city’s population set to grow from circa seven million to eight million by 2030, the requirement for a mass transit system seems clear, not only when placed in context of the city’s congested nature, but given the rapid social reform that is under way in Saudi Arabia.”
The good news is that Riyadh, according to the Knight Frank report, is “defined as a real estate ecosystem [without] natural topographical restraints”. As a result, owners and investors must only focus on “how to maintain and grow asset value”. As Majdalani explains, the launch of Riyadh Metro may bring other parts of the city to the fore, and transform them into hot-spots of construction and infrastructure-development activity.
She explains: “The introduction of the metro may lead to a more permanent outer boundary for Riyadh. Therefore, we argue that areas that may have been classed secondary locations historically are set to become future value-creation hot-spots.
“Moreover, this trend is likely to extend further to developing areas [with] low density.”
While the Saudi real estate market’s “underlying fundamentals” make it a positive residential pocket for the medium to long term, Knight Frank’s latest Saudi Arabia Residential Review shows that, despite strong demand, the sector witnessed a slowdown in 2017. Majdalani explains that this is partly due to a change in buyer demand, which has historically “been mismatched” by the large villas that are typically construct in the kingdom.
She continues: “With demand shifting away from villa stock towards more affordable and smaller units, mixed-use urban regeneration around key metro hubs could respond to this growing market segment.
“Given the young and growing population whose tastes are fast-changing and developing in line with global trends along with the propensity for smaller household sizes, we are likely to see demand shift away from villa stock to smaller units that are part of environments with good connectivity.”
Additionally, this trend may also support the rise of affordable housing in Saudi Arabia, as new demand contrasts with the availability of home financing.
FROM THE ARCHIVES: Construction timeline of Saudi Arabia's Riyadh Metro
“As social norms change within the kingdom, the move away from the family home is coming earlier in each generation,” Majdalani explains.
“Given the kingdom’s young population dynamics, this only stresses the requirement for such stock. We see the success of [Saudi’s large-scale] projects resting, in part, on being efficiently connected to the wider urban environment through major infrastructure projects such as the Riyadh Metro.
“The implementation of Riyadh Metro [will act] as a catalyst for urban regeneration and sustainable development in the capital city. Over the medium to long term, the metro is expected to transform Riyadh for the better, improving the quality of life of local community, [which is] a central objective of the kingdom’s leadership.”