Saudi economy in doldrums as Crown Prince Mohammed bin Salman's influence wavers

Saudi Arabia's property market has been hit hard by the kingdom's stalled economy and austerity drive, all designed to help the government cope with low oil prices.

Rents in some part of the country could fall by more than 50 percent over the next year as millions of expatriates prepare to leave the Gulf state as the government takes aim at them to shore up cash, the Financial Times reported.

It comes as Saudi Arabia introduced the so-called expat tax, meaning foreign workers must pay $26 per dependent living in the kingdom with the tax set to rise rapidly in the coming years.

As many as 2.5 million of the country's 10 million expatriates are expected to leave by the end of next year as foreigners' tax-free lifestyle comes to an end.

Expat tax

The impact of the country's expatriate tax, austerity drive and sluggish economy is already being felt with sales of property falling 3 percent in the capital Riyadh, while new office rental deals in Jeddah fell by 9 percent in the second quarter.

A JLL study noted the trend could be seen across the board and the country, despite oil prices lifting slightly from low points in 2014 and 2015.

"The new regulations on expats are affecting the outflow of foreigners, which means population will decline, affecting demand," Mazen al-Sudairi, head of research at al-Rajhi Capital told the Financial Times.

The country's diversification and austerity drive was initiated by Saudi Arabia's Crown Prince Mohammed bin Salman, and was intended to strengthen government coffers following the 2014 oil price crash.

There is a recognition that too many of these targets were too aggressive and maybe having too much impact on the economy.

Among the measures were levies on expatriates to help cut the government deficit and encourage Saudi companies to recruit nationals.

The government has also attempted to tackle a housing shortage for Saudis with the construction of new homes and soft loans which could also impact on property prices.

Yet despite Riyadh meeting its target on defence spending in the first half of 2017, it could be seriously short of providing the capital needed to fund the expensive home buiding programme.

Dream and visions

There are already signs that bin Salman's ambitious economic vision for the country could be flawed as the UK financial daily revealed the crucial National Transformation Plan targets are being revised.

Over ambitious deadlines for meeting targets are being extended or dropped due to a failure to rescue the economy and reduce its reliance on oil.

"There is a recognition that too many of these targets were too aggressive and maybe having too much impact on the economy," a government insider told the daily.

"Flexibility is great, but changing the goalposts isn't a healthy habit," another official said.

Mohammed bin Salman's rapid rise to power came on the back on Saudi Arabia's war in Yemen as defence minister and promises to reconfigure the economy.

Saudi Arabia appears no closer to winning the war against Houthi rebels in Yemen, which has proven to be an excessively expensive exercise in power and so far showed no results.

The economic situation is probably of even more of a concern as bin Salman's economic vision appearing to be driven on hubris rather than clear and achievable aims and plans.

Rumours have been circulating this week that King Salman could be preparing to pass the crown on to his son before it is too late.

The urgency of the elevation of Mohammed bin Salman to king is seen as a way of blocking opposition to the crown prince whose power and support is believed to be waning.