Renting became the best affordable solution for satisfying the need of residence and shelter amid the soaring properties prices, rising rates of population growth especially in developing countries, and scarcity of lands. But what causes rental prices to change dramatically?
Many international statistics revealed that percentage of home ownership in the developing countries doesn’t exceed 65% at best. Rate of home ownership in Saudi Arabia for instance is 62%, 38% in Egypt, and 30% in Nigeria.
Thus, home renting is rising as a perfect substitute for many reasons, and rental prices are dominating significant proportions of contemporary citizens’ annual and monthly incomes.
Moreover, rental prices are not stable by any mean, they are always fluctuating according to many economic, social, and political factors like:
Oil price is a substantial factor which overshadows the rental prices in GCC. Hydrocarbon industry is a rudimentary source of national income in all around GCC states, hence, the fluctuation of oil prices directly affect the value of national income, and impacts the whole economic performance.
The hike of oil prices stirs up the economic and props up the governmental expenditure on real estate and infrastructure which projects which defines rental prices to a far extent, and vice versa with oil prices plunge also like nowadays.
Stock market indices stand as a strong indicator of public and private companies’ performance in any economy. Peaking stocks bolsters the market attractively to foreign investments which mean more work and more jobs, hence high rental prices.
Dropping stocks on the other side lead to stagnation and slack economic performance which puts rental prices under severe pressure to plunge as well.
Availability of cash liquidity in banks and financing institutions will encourage citizens to ask for more personal and housing loans with better payment terms which could affect rental prices.
Laws and Provisions
Some laws taken by the governments concerning the real estate market like defining certain price caps or rates of prices growth.
Also financial and economic decrees could overshadow rental prices like for example the recent decree taken by SAMA in Saudi Arabia last year about stipulating a 30% minimum of property loans deposits which pushed rental prices to rise in the main Saudi cities.
Main tourism seasons like pilgrimage in Saudi Arabia or the festivals and exhibitions periods resemble great opportunities for properties owners and landlords.
Tourists’ high influx energizes rental prices, it’s significant also that after these touristic occasions rental prices drop back again to the normal rates.
Hail for example is a region in Saudi Arabia were vehicle rallies are held in a certain time every year. Rental prices surge in Hail during the events period by 50% for most residential units, while it falls back to the normal rates directly after the end of the event.
Supply and Demand
Supply provisions of residential units could shift the price levels in any market. The entry of huge provisions of units in a number that exceeds demand rates could pressure rental prices to drop in any normal market.
As a result, project owners and real estate investors tend to study thoroughly the market situation and demand rates before commencing on their projects in order to evade any unfavorable price shifts.
Developing countries which witness high rates of youth unemployment witness also stability or stagnation in rental market. Unemployment rate is indirectly related with rental prices.
Low unemployment means plenty of jobs opportunities, influx of youth on finding separate residences or marriage. Renting is the best choice for whoever looking for private residence especially in case they don’t have enough purchase power for properties free holding.
On the other hand, high unemployment rate could result in aggravating ordeals in developing societies. Not only it impacts the real estate market, but it also creates serious social diseases like crimes, breaking the law, and in many cases, terrorism.
Political Reasons (Refugees crisis)
Major political crises like wars or revolts could result flourishing real estate markets of other states.
Wars and revolts cause huge refugees tides to neighboring countries. Despite security and political tensions that could result from refugees’ concentration, properties market could lie between the benefiters as refugees influx means high demand on residence, which result in rising rental prices.
This occurred in Lebanon and Jordan, the flow of thousands of Syrian refugees towards these states left rental prices surging especially in refugees’ concentration areas around major cities.
Expensive freehold properties prices stimulate rental prices to rise as well. The high demand on renting as a better substitute of properties ownership amid the rising population growth rates pushes rental prices to hike as well.