The real estate market in the Saudi Arabia is currently very different from how we know it in the united states and other regions particularly a year ago when it was thought that it was heading to the bottomless abyss. While the MENA region was amongst the last to be hit by the global economic crisis, real estate markets in some of its locations have surprisingly been the fastest to adjust with some locations reporting as much as 50 percent fall in values over the last year. Investors are more confident in these countries which have somehow survived the global economic crisis. Saudi Arabia in particular is one of the countries in the region that have scored highly for their economic prowess as well as potential (Jones Lang LaSalle 2009b). Investors believe that the Kingdoms real estate market is already recovering as it was not as hardly hit as other countries in the same region such as Dubai. A survey conducted by (Jones Lang LaSalle 2009b), reports that the Kingdom of Saudi Arabia is regarded as the market that will most likely see increases in price over the next one year hence investor expectations that it will be or is the first one to recover from the economic crisis. As the demand for real estate properties rise and investors rush in to participate in the market, many are wondering how rational these investors are going be when pricing particularly office property. It is expected that owners and investors will recognize the true value of their properties and price them accordingly in the face of todays market trends.
The Saudi economy is characterized by strengths and opportunities which have contributed to the growth of the real estate market. The two most important factors that have facilitated growth of Saudis real estate market are the kingdoms growing young population and economic growth that has been experienced over the last few years (Siddiqi 2000). Saudi Arabias construction industry is the largest in the Middle East (Business Monitor International 2009). In addition to government spending that is active. Efforts are being channeled towards increasing private investment as well as attracting foreign investors. This strategy is expected to help maintain growth of the Kingdoms economy over the next couple of years. Demand in construction is being driven by government led activities which are enhanced by oil windfalls (Crockett 2008). Saudis real estate market is capable but not overcrowded as it has at least 7 real estate development companies that are listed on the Kingdoms Stock exchange (Business Monitor International 2009). Large scale developments including King Abdulla Economic City imply that the countrys economic climate is right and ready for massive investment in real estate development projects (Smith, 2008). Increase in private investment is definitely going to provide opportunities for large multinationals to increase their investment and involvement in Saudi Arabia for the next five years increasing the demand for office space.
According to Jones Lang LaSalle (2008), economic growth in Saudi is going to increase office market activity due to local demand. The demand will further be increased by the opening of the Kingdom to foreign investors. Cities such as Riyadh, Dammam and Jeddah will inevitably experience rises in rent prices for office space.
Increased demand that exceeds supply however poses challenges in Saudis real estate market particularly for the buyers and tenants. It is worth to note that the Kingdoms real estate market is not yet transparent (Jones Lang LaSalle 2008). Saudi unlike other countries in the region such as Dubai,Dubai Saudi Arabia lacks land registry or a similar model that would regulate the real estate developers and their practices. There is no registry of purchase agreements between buyers and developers which also prevents secondary purchasers from accessing the actual history of the property and anand an established system or policy to protect buyers from bad practices such as having the same property sold more than once. The new mortgage law which is expected to favor low and middle income earners is yet to be implemented. Regulations in this industry are also yet to be firmly established implying that buyers and tenants are at the mercy of owners as far as pricing is concerned. According to Jones Lang LaSalle (2009b), there are calls for international benchmarks to be considered when pricing the properties. This is based on lack of transactional evidence locally and challenges faced in estimating the actual pricing in markets in cases where there have been some transactions in the past. The major markets in Saudi Arabia also indicate that the number of potential buyers exceeds that of sellers of real estate assets including residential homes and office space (Jones Lang LaSalle 2009b). Jones Lang LaSalle (2008), reports that Saudis real estate market is characterized by affordability issues with much . According to the report, much of the new housing is targeting only the rich and is not affordable to the majority younger Saudis who are at the moment joining the workforce. Study also shows that most Most of the offices being developed focus on attaining quality implying that they are likely to be more expensive than the existing ones which most do not meet corporate standards. There is a shortage of buildings in Riyadh and other cities in the Kingdom which meet high specification office space that meets the required international standards. However, new major developments have been planned which will see an increase in supply of quality office space and encourage investor companies to upgrade the accommodation they offer (Deutsche Bank 2010). There are also implications that most offices will move away from the central business district due to congestion. While some of these facts should lead to a decrease in the pricing of real properties, most of them imply an increase. How reasonable the owners are going to be particularly since regulation rules are yet to be implemented remains a question of concern.
Based on this, thisThis paper seeks to establish whether investors behave rationally when they price the Saudi Arabia Office space based on reports that the supply can not meet the increasing demand. Reports show that the number of potential buyers and tenants currently is higher than that one of sellers in the market. In other words, the supply can not meet the demand. This raises concerns as to whether the owners and the companies are going to be realistic in the pricing of their property particularly a in a world where capitalism which is characterized byin a country that lacks unfairness rules. Lack of regulations in Saudisits real real estate market. causes more alarm. TThe researcher seeks to attain this by carrying out a qualitative explanatory study in which data will be collected by critically appraising and reviewing articles on prior studies. Qualitative data The data will be analyzed using content analysis and meta-analysis for the quantitative data. Mand multultipleiple perspectives will used used in validation.
1.2 Research Objectives
The main objective of this study is to examine whether or not investors (in this case the real estate development companies and other property owners) behave rationally when pricing the Saudi Arabia office properties. To achieve this purpose, the study intends to test and answer certain questions. These questions are based on literature review and the conceptual framework on which this study is developed. The study seeks to establish what the main issues that matter to real estate development companies, individual owners and other investors in the market are. The main constraints the developing companies and owners face which affect the pricing of office properties will be determined.The study also seeks to determine the main constraints the developing companies and owners face which affect the pricing of office properties. The study will examine the cost of production (price of land, its location, cost of labor and material) to determine how reasonable the investors are when pricing office properties. The purchasing power of Saudis young population as well as the supply to demand ratio (local demand in particular) of office space in Saudi will also be assessed The study will also assess the purchasing power of Saudis young population as well as the supply to demand ratio (local demand in particular) of office space in Saudi. This research will establish whether the real estate developing companies have come up with any innovative ways in their planning, designing, technology and general way of running business that intend to improve the quality of the products offered as well as reducing their pricing.
1.3 Research Context
This study will concentrate on the real estate market in Saudi Arabia. The study focuses on real estate developing companies and other property owners and the process or rather methods used to determine the price of their properties. The study is not concerned with tenants or potential buyers. Though this study is interested in the effect of lack of regulation in pricing of property in Saudi Arabia, it will exclude the concerned regulation body in the Kingdom and the existing regulations which are not effective anyway. This study is also only interested in the office market. Though residential market is crucial in Saudi at the moment, this research will not include it. In assessing some of the factors that should be considered when pricing these properties, the study will only look at location and cost of production.
2. Literature Review and Theoretical Framework
Saudi Arabia is the largest and one of the fastest growing real estate markets in the Gulf region (Jones Lang LaSalle, 2008). The kingdoms commercial real estate stock is forecasted to double in size by the year 2012 at 30 million squares per meter (Jones Lang LaSalle, 2008). This is attributed to the kingdoms new era of leadership amongst several other factors that will be discussed later. Research shows that the Saudi Arabian real estate and construction sector offers the most attractive investment opportunities in the region at the moment (Deutsche Bank 2010). Unlike other countries in the region, Saudis real estate and construction market has remained more stable, unshaken by the global economic crisis (Martin 2000). The Kingdoms economy has remained quite stable unlike others which stumbled with the ongoing global financial crisis. Saudi somehow remained unaffected and its economy is performing considerably well. The banks have the money and the ability to lend for investment. There are several other factors which when combined have contributed to the growth of the real estate and construction sector.
More than 70 percent of the countrys population is less than the age of 30 and continues to increase at a healthy rate (Jones Lang LaSalle 2009). EFG HERMES (2009), also reports that there is increasing wealth among the Saudi population. Low home ownership rates in Saudi Arabia is another contributing factor to the growth of real estate market in the Kingdom (EFG HERMES 2009). The kingdom is also experiencing inward migration (from smaller towns and rural areas to Riyadh) as well as immigration of expatriate professionals and workers. Increased investment in utility supplies, hospitals, schools and ring roads are facilitating extensions of the city. The implications are that there is going to be an acute shortage of housing as well as office space in future (Jones Lang LaSalle 2009). A study carried out by NCB Capital predicts that residential and office space demand will increase by over 1.3m units in the next seven years due to economic growth. It is expected that investments in the excess of 180b are required to meet this demand (Rashid 2008). The implications are that the demand is going to be higher than the supply which will drive the prices high.
According to a report by Jones Lang LaSalle (2009a), a lot of money is being channeled towards the real estate sector but affordability remains the real challenge particularly since the supply is not proportional to the rising demand. While the real estate companies are trying to make houses and offices affordable through innovation, it is obvious that the prices charged for renting or purchasing are going to be very high. Jones Lang LaSalle (2009a), reports that the an increase in opportunities for foreign businesses in Saudi Arabia in the next few months is going to see a return of multinational corporations in the Kingdom which will put pressure on office supply. According to this article, rent for office space is not high at the moment (SR 1, 000 per squared meter pa) in Riyadh. With the expected expansion of the private sector and the fact that foreign companies have been allowed to invest in Saudi again, these prices are expected to rise beginning 2010 (Jones Lang LaSalle 2009a).
It is worth to note that most of theMost of literaturethe literature reports that much more needs to be done in terms of regulation of the real estate market. According to EFG HERMES (2009), the mortgage law still remains ambiguous in Saudi Arabia. Regulatory entities in the kingdom are also in their young stages implying that they are yet to be tested. EFG HERMES (2009) notes that the increasing demand that surpasses supply requires a regulations entity which is yet to be effectively established in Saudi. The article reports thatR regulation entities still remain untested in the Saudi market implying that the pricing of property remains highly in the hands of the real estate developers. Lack of well established entities raises concerns about how rational the developers and real estate companies are going to behave when pricing particularly the office properties who demand is set to shoot up in the near future. Though Jones Lang LaSalle (2009b) argues that realistic pricing is paramount to creating products that will attract investors, it still remains to be seen how realistic these prices will considering the fact that the demand is higher than the supply. A survey carried out by Jones Lang LaSalle (2009b) indicates that investors are calling for more regulations especially since there still is no clarity on the true value of real estate assets. Market regulation particularly on pricing is the most significant factor that influence investors decision making (Martin 2000). A report by Jones Lang LaSalle (2009c) reports that also indicates that stability in pricing transparency and balance in supply and demand are important factors in attracting long term investors in real estate.
The reviewed literature implies that growth in the real estate market is expected in Saudi with a great imbalance in supply and demand. The implications are that property owners and developers will raise the prices of properties. Opening up of Saudi to private investors will without doubt increase the number of multinationals involvement with the Kingdom increasing the demand for office space in addition to the local demand. Lack of regulation raises concerns on how reasonable pricing of these properties is going to be. None of the literature reviewed has attempted to address this fact. The factors that determine pricing particularly for office property have not been addressed. Not much has been done on how rational property owners behave when pricing the Saudi office properties. The studied literature present a capitalistic economy where there are no regulations on pricing as investors (owners and developing companies) are targeting the upper class in the society in spite of the fact that the majority of the population are young people who have just joined the labor force and are not in a position to afford the high prices being charged on these properties. It is on this missing gap in the literature and the theoretical framework that this study is developed on.
Theoretical Framework
This study is based on the efficient-market hypothesis which claims that the efficiency of financial markets depends on information meaning that the prices of traded assets such as property and stocks reflect all and any available information and any instant changes reflect new information. Information in this theory refers to any factors that may affect prices which can not be known in the present hence appear randomly in the future. This theory supports the belief in rational markets. The hypothesized theory requires agents to be rational in their expectations that the population is on average correct even in the event this is not so and that whenever new information that affects the price appears, they update their expectations in an appropriate manner. This theory provides for the fact that some investors underreact while others overreact whenever they are faced with new information. It therefore requires investors reactions to be randomized and a normal distribution pattern be followed so that an abnormal profit is not made by overly exploiting the net profit effect on market prices. The implications are that while one or more people can be wrong about the market, the market as a whole can not be wrong and always is right. Pricing of property should therefore be done in accordance with the current market trends.
3. Methodology
3.1. Research Approach
This is a case study in which the researcher seeks to study the real estate market of Saudi Arabia. Based on the main aim of the research, it This study can be regarded as a qualitative explanatory study. This is based on the main objective of the study in which the researcher seeks to examine whether or not investors behave rationally when they price the Saudi Arabia office properties.. The researcher will therefore focus on collecting responses as data as opposed to numerical datathough quantitative data particularly in pricing and changes related to pricing of office property will also be collected.. The researcher chose to carry out a qualitative study because they intend to come up with a rich in-depth explanation as to whether there is rationality in the pricing of Saudi Arabia office properties which can only be achieved by conducting a qualitative study (King 2004)
3.2. Data Collection
To carry out a comprehensive study, the researcher intends to collect data using secondary sources. Data will be collected by critically appraising and reviewing articles reporting on prior studies on the same or similar topics. Though this method has several disadvantages, it also has some advantages that made the researcher to choose it. Using secondary data is faster and cheaper hence saves on time and money which are very critical resources in research work (Leedy, Ormrod 2005). Using secondary sourcesIt also increases accuracy of the data as it reduces researcher-based biases that are common in primary research particularly during sampling. Some of the studies which the researcher intends to review include the following articles 1.3 Trillion Real Estate Gold Rush. Middle East, a journal article by Smith, P. M. 2008 Saudi Stock Market Open for Business. Middle East by Martin, J. 2008, Saudi Real Estate Sector. Middle East, by Rashid, Data will be obtained from journal articles and the data arguemented with that from commercial databases, national reports and surveys. 2008
Riyadh Bridging the Missing Links. on.point. Riyadh City Profile Meeting the Challenges Competing for the Future. on.point. Real Estate Investor Survey- Middle East North Africa Race to Competitiveness Preparing MENA Markets for Long Term Investors. Pulse. MENA House View Jones Lang LaSalle. 2008. The Gulfs Powerhouse. Saudi Arabias Real Estate Market all by Jones Lang LaSalle amongst several other survey reports. The researcher will critically analyze each of the sources selected research reports and articles they will have selected for important information that is relevant to the research question.
3.4. Data Analysis
The collected data will be analyzed using content analysis. This method is appropriate particularly for data that has been collected from secondary sources. It involves the researcher critically analyzing the collected contents to determine any matching patterns in the reports from different researchers. Content analysis has been defined as the best method to use when studying the content of recorded or stored human communications including books, laws, and journals. It is an in-depth analysis that includes the researcher paying attention to reliability, validity, replicability, hypothesis testing, and generalizability as well objectivity of the content before using it to draw conclusions ad make inferences (Salkind 2006). A meta-analysis of the quantitative data will be conducted. Meta-analysis allows the researcher to investigate several research questions and to statistically test overall factors in related studies. It allows generalization of the collected data to the population being studied.
This method categorizes the literature according to emerging themes allowing the researcher to identify similarities in data collected from the different sources (Salkind 2006). This enables the researcher to derive rich in-depth data which is the goal of qualitative studies.
3.5. Validation
Qualitative studies are often characterized by validation issues because of the nature of the design. Use of secondary sources to collect data in particular has reliability issues as it is usually not possible for the researcher to identify the errors that might have occurred especially during collection of data and whether the right procedure was used in sampling (Saunders, Lewis, Thornhill 2007). To address this issue, the researcher intends to use multiple perspectives in validation because triangulation is not available for this study. In multiple perspectives, the researcher will use one of the most common strategies which is to take the findings to other researchers who have conducted prior research on the same or similar topics to find out how their findings compare with those of this study. This strategy has been recommended in qualitative studies where triangulation can not be carried out so as to increase the validity and reliability of the findings (Saunders, Lewis, Thornhill 2007).
.
3.6. Ethical Issues
Based on the method used to collect data, the researcher will not experience any access issues. This study however involves using other peoples published work as sources of data. Use of secondary data is characterized by plagiarism issues. The researcher intends to avoid this by referencing any information they lift from other researches work. The researcher will acknowledge other researchers and give them credit for their work.
4. Action Plan
ActivityTime (Weeks)Searching and identifying reliable
Secondary sources1Collection of data 2Data analysis3Validation 1Thesis writing1Total10Special ResourcesPasswords to various journal libraries as
well as data bases to get research reports from
The Saudi economy is characterized by strengths and opportunities which have contributed to the growth of the real estate market. The two most important factors that have facilitated growth of Saudis real estate market are the kingdoms growing young population and economic growth that has been experienced over the last few years (Siddiqi 2000). Saudi Arabias construction industry is the largest in the Middle East (Business Monitor International 2009). In addition to government spending that is active. Efforts are being channeled towards increasing private investment as well as attracting foreign investors. This strategy is expected to help maintain growth of the Kingdoms economy over the next couple of years. Demand in construction is being driven by government led activities which are enhanced by oil windfalls (Crockett 2008). Saudis real estate market is capable but not overcrowded as it has at least 7 real estate development companies that are listed on the Kingdoms Stock exchange (Business Monitor International 2009). Large scale developments including King Abdulla Economic City imply that the countrys economic climate is right and ready for massive investment in real estate development projects (Smith, 2008). Increase in private investment is definitely going to provide opportunities for large multinationals to increase their investment and involvement in Saudi Arabia for the next five years increasing the demand for office space.
According to Jones Lang LaSalle (2008), economic growth in Saudi is going to increase office market activity due to local demand. The demand will further be increased by the opening of the Kingdom to foreign investors. Cities such as Riyadh, Dammam and Jeddah will inevitably experience rises in rent prices for office space.
Increased demand that exceeds supply however poses challenges in Saudis real estate market particularly for the buyers and tenants. It is worth to note that the Kingdoms real estate market is not yet transparent (Jones Lang LaSalle 2008). Saudi unlike other countries in the region such as Dubai,Dubai Saudi Arabia lacks land registry or a similar model that would regulate the real estate developers and their practices. There is no registry of purchase agreements between buyers and developers which also prevents secondary purchasers from accessing the actual history of the property and anand an established system or policy to protect buyers from bad practices such as having the same property sold more than once. The new mortgage law which is expected to favor low and middle income earners is yet to be implemented. Regulations in this industry are also yet to be firmly established implying that buyers and tenants are at the mercy of owners as far as pricing is concerned. According to Jones Lang LaSalle (2009b), there are calls for international benchmarks to be considered when pricing the properties. This is based on lack of transactional evidence locally and challenges faced in estimating the actual pricing in markets in cases where there have been some transactions in the past. The major markets in Saudi Arabia also indicate that the number of potential buyers exceeds that of sellers of real estate assets including residential homes and office space (Jones Lang LaSalle 2009b). Jones Lang LaSalle (2008), reports that Saudis real estate market is characterized by affordability issues with much . According to the report, much of the new housing is targeting only the rich and is not affordable to the majority younger Saudis who are at the moment joining the workforce. Study also shows that most Most of the offices being developed focus on attaining quality implying that they are likely to be more expensive than the existing ones which most do not meet corporate standards. There is a shortage of buildings in Riyadh and other cities in the Kingdom which meet high specification office space that meets the required international standards. However, new major developments have been planned which will see an increase in supply of quality office space and encourage investor companies to upgrade the accommodation they offer (Deutsche Bank 2010). There are also implications that most offices will move away from the central business district due to congestion. While some of these facts should lead to a decrease in the pricing of real properties, most of them imply an increase. How reasonable the owners are going to be particularly since regulation rules are yet to be implemented remains a question of concern.
Based on this, thisThis paper seeks to establish whether investors behave rationally when they price the Saudi Arabia Office space based on reports that the supply can not meet the increasing demand. Reports show that the number of potential buyers and tenants currently is higher than that one of sellers in the market. In other words, the supply can not meet the demand. This raises concerns as to whether the owners and the companies are going to be realistic in the pricing of their property particularly a in a world where capitalism which is characterized byin a country that lacks unfairness rules. Lack of regulations in Saudisits real real estate market. causes more alarm. TThe researcher seeks to attain this by carrying out a qualitative explanatory study in which data will be collected by critically appraising and reviewing articles on prior studies. Qualitative data The data will be analyzed using content analysis and meta-analysis for the quantitative data. Mand multultipleiple perspectives will used used in validation.
1.2 Research Objectives
The main objective of this study is to examine whether or not investors (in this case the real estate development companies and other property owners) behave rationally when pricing the Saudi Arabia office properties. To achieve this purpose, the study intends to test and answer certain questions. These questions are based on literature review and the conceptual framework on which this study is developed. The study seeks to establish what the main issues that matter to real estate development companies, individual owners and other investors in the market are. The main constraints the developing companies and owners face which affect the pricing of office properties will be determined.The study also seeks to determine the main constraints the developing companies and owners face which affect the pricing of office properties. The study will examine the cost of production (price of land, its location, cost of labor and material) to determine how reasonable the investors are when pricing office properties. The purchasing power of Saudis young population as well as the supply to demand ratio (local demand in particular) of office space in Saudi will also be assessed The study will also assess the purchasing power of Saudis young population as well as the supply to demand ratio (local demand in particular) of office space in Saudi. This research will establish whether the real estate developing companies have come up with any innovative ways in their planning, designing, technology and general way of running business that intend to improve the quality of the products offered as well as reducing their pricing.
1.3 Research Context
This study will concentrate on the real estate market in Saudi Arabia. The study focuses on real estate developing companies and other property owners and the process or rather methods used to determine the price of their properties. The study is not concerned with tenants or potential buyers. Though this study is interested in the effect of lack of regulation in pricing of property in Saudi Arabia, it will exclude the concerned regulation body in the Kingdom and the existing regulations which are not effective anyway. This study is also only interested in the office market. Though residential market is crucial in Saudi at the moment, this research will not include it. In assessing some of the factors that should be considered when pricing these properties, the study will only look at location and cost of production.
2. Literature Review and Theoretical Framework
Saudi Arabia is the largest and one of the fastest growing real estate markets in the Gulf region (Jones Lang LaSalle, 2008). The kingdoms commercial real estate stock is forecasted to double in size by the year 2012 at 30 million squares per meter (Jones Lang LaSalle, 2008). This is attributed to the kingdoms new era of leadership amongst several other factors that will be discussed later. Research shows that the Saudi Arabian real estate and construction sector offers the most attractive investment opportunities in the region at the moment (Deutsche Bank 2010). Unlike other countries in the region, Saudis real estate and construction market has remained more stable, unshaken by the global economic crisis (Martin 2000). The Kingdoms economy has remained quite stable unlike others which stumbled with the ongoing global financial crisis. Saudi somehow remained unaffected and its economy is performing considerably well. The banks have the money and the ability to lend for investment. There are several other factors which when combined have contributed to the growth of the real estate and construction sector.
More than 70 percent of the countrys population is less than the age of 30 and continues to increase at a healthy rate (Jones Lang LaSalle 2009). EFG HERMES (2009), also reports that there is increasing wealth among the Saudi population. Low home ownership rates in Saudi Arabia is another contributing factor to the growth of real estate market in the Kingdom (EFG HERMES 2009). The kingdom is also experiencing inward migration (from smaller towns and rural areas to Riyadh) as well as immigration of expatriate professionals and workers. Increased investment in utility supplies, hospitals, schools and ring roads are facilitating extensions of the city. The implications are that there is going to be an acute shortage of housing as well as office space in future (Jones Lang LaSalle 2009). A study carried out by NCB Capital predicts that residential and office space demand will increase by over 1.3m units in the next seven years due to economic growth. It is expected that investments in the excess of 180b are required to meet this demand (Rashid 2008). The implications are that the demand is going to be higher than the supply which will drive the prices high.
According to a report by Jones Lang LaSalle (2009a), a lot of money is being channeled towards the real estate sector but affordability remains the real challenge particularly since the supply is not proportional to the rising demand. While the real estate companies are trying to make houses and offices affordable through innovation, it is obvious that the prices charged for renting or purchasing are going to be very high. Jones Lang LaSalle (2009a), reports that the an increase in opportunities for foreign businesses in Saudi Arabia in the next few months is going to see a return of multinational corporations in the Kingdom which will put pressure on office supply. According to this article, rent for office space is not high at the moment (SR 1, 000 per squared meter pa) in Riyadh. With the expected expansion of the private sector and the fact that foreign companies have been allowed to invest in Saudi again, these prices are expected to rise beginning 2010 (Jones Lang LaSalle 2009a).
It is worth to note that most of theMost of literaturethe literature reports that much more needs to be done in terms of regulation of the real estate market. According to EFG HERMES (2009), the mortgage law still remains ambiguous in Saudi Arabia. Regulatory entities in the kingdom are also in their young stages implying that they are yet to be tested. EFG HERMES (2009) notes that the increasing demand that surpasses supply requires a regulations entity which is yet to be effectively established in Saudi. The article reports thatR regulation entities still remain untested in the Saudi market implying that the pricing of property remains highly in the hands of the real estate developers. Lack of well established entities raises concerns about how rational the developers and real estate companies are going to behave when pricing particularly the office properties who demand is set to shoot up in the near future. Though Jones Lang LaSalle (2009b) argues that realistic pricing is paramount to creating products that will attract investors, it still remains to be seen how realistic these prices will considering the fact that the demand is higher than the supply. A survey carried out by Jones Lang LaSalle (2009b) indicates that investors are calling for more regulations especially since there still is no clarity on the true value of real estate assets. Market regulation particularly on pricing is the most significant factor that influence investors decision making (Martin 2000). A report by Jones Lang LaSalle (2009c) reports that also indicates that stability in pricing transparency and balance in supply and demand are important factors in attracting long term investors in real estate.
The reviewed literature implies that growth in the real estate market is expected in Saudi with a great imbalance in supply and demand. The implications are that property owners and developers will raise the prices of properties. Opening up of Saudi to private investors will without doubt increase the number of multinationals involvement with the Kingdom increasing the demand for office space in addition to the local demand. Lack of regulation raises concerns on how reasonable pricing of these properties is going to be. None of the literature reviewed has attempted to address this fact. The factors that determine pricing particularly for office property have not been addressed. Not much has been done on how rational property owners behave when pricing the Saudi office properties. The studied literature present a capitalistic economy where there are no regulations on pricing as investors (owners and developing companies) are targeting the upper class in the society in spite of the fact that the majority of the population are young people who have just joined the labor force and are not in a position to afford the high prices being charged on these properties. It is on this missing gap in the literature and the theoretical framework that this study is developed on.
Theoretical Framework
This study is based on the efficient-market hypothesis which claims that the efficiency of financial markets depends on information meaning that the prices of traded assets such as property and stocks reflect all and any available information and any instant changes reflect new information. Information in this theory refers to any factors that may affect prices which can not be known in the present hence appear randomly in the future. This theory supports the belief in rational markets. The hypothesized theory requires agents to be rational in their expectations that the population is on average correct even in the event this is not so and that whenever new information that affects the price appears, they update their expectations in an appropriate manner. This theory provides for the fact that some investors underreact while others overreact whenever they are faced with new information. It therefore requires investors reactions to be randomized and a normal distribution pattern be followed so that an abnormal profit is not made by overly exploiting the net profit effect on market prices. The implications are that while one or more people can be wrong about the market, the market as a whole can not be wrong and always is right. Pricing of property should therefore be done in accordance with the current market trends.
3. Methodology
3.1. Research Approach
This is a case study in which the researcher seeks to study the real estate market of Saudi Arabia. Based on the main aim of the research, it This study can be regarded as a qualitative explanatory study. This is based on the main objective of the study in which the researcher seeks to examine whether or not investors behave rationally when they price the Saudi Arabia office properties.. The researcher will therefore focus on collecting responses as data as opposed to numerical datathough quantitative data particularly in pricing and changes related to pricing of office property will also be collected.. The researcher chose to carry out a qualitative study because they intend to come up with a rich in-depth explanation as to whether there is rationality in the pricing of Saudi Arabia office properties which can only be achieved by conducting a qualitative study (King 2004)
3.2. Data Collection
To carry out a comprehensive study, the researcher intends to collect data using secondary sources. Data will be collected by critically appraising and reviewing articles reporting on prior studies on the same or similar topics. Though this method has several disadvantages, it also has some advantages that made the researcher to choose it. Using secondary data is faster and cheaper hence saves on time and money which are very critical resources in research work (Leedy, Ormrod 2005). Using secondary sourcesIt also increases accuracy of the data as it reduces researcher-based biases that are common in primary research particularly during sampling. Some of the studies which the researcher intends to review include the following articles 1.3 Trillion Real Estate Gold Rush. Middle East, a journal article by Smith, P. M. 2008 Saudi Stock Market Open for Business. Middle East by Martin, J. 2008, Saudi Real Estate Sector. Middle East, by Rashid, Data will be obtained from journal articles and the data arguemented with that from commercial databases, national reports and surveys. 2008
Riyadh Bridging the Missing Links. on.point. Riyadh City Profile Meeting the Challenges Competing for the Future. on.point. Real Estate Investor Survey- Middle East North Africa Race to Competitiveness Preparing MENA Markets for Long Term Investors. Pulse. MENA House View Jones Lang LaSalle. 2008. The Gulfs Powerhouse. Saudi Arabias Real Estate Market all by Jones Lang LaSalle amongst several other survey reports. The researcher will critically analyze each of the sources selected research reports and articles they will have selected for important information that is relevant to the research question.
3.4. Data Analysis
The collected data will be analyzed using content analysis. This method is appropriate particularly for data that has been collected from secondary sources. It involves the researcher critically analyzing the collected contents to determine any matching patterns in the reports from different researchers. Content analysis has been defined as the best method to use when studying the content of recorded or stored human communications including books, laws, and journals. It is an in-depth analysis that includes the researcher paying attention to reliability, validity, replicability, hypothesis testing, and generalizability as well objectivity of the content before using it to draw conclusions ad make inferences (Salkind 2006). A meta-analysis of the quantitative data will be conducted. Meta-analysis allows the researcher to investigate several research questions and to statistically test overall factors in related studies. It allows generalization of the collected data to the population being studied.
This method categorizes the literature according to emerging themes allowing the researcher to identify similarities in data collected from the different sources (Salkind 2006). This enables the researcher to derive rich in-depth data which is the goal of qualitative studies.
3.5. Validation
Qualitative studies are often characterized by validation issues because of the nature of the design. Use of secondary sources to collect data in particular has reliability issues as it is usually not possible for the researcher to identify the errors that might have occurred especially during collection of data and whether the right procedure was used in sampling (Saunders, Lewis, Thornhill 2007). To address this issue, the researcher intends to use multiple perspectives in validation because triangulation is not available for this study. In multiple perspectives, the researcher will use one of the most common strategies which is to take the findings to other researchers who have conducted prior research on the same or similar topics to find out how their findings compare with those of this study. This strategy has been recommended in qualitative studies where triangulation can not be carried out so as to increase the validity and reliability of the findings (Saunders, Lewis, Thornhill 2007).
.
3.6. Ethical Issues
Based on the method used to collect data, the researcher will not experience any access issues. This study however involves using other peoples published work as sources of data. Use of secondary data is characterized by plagiarism issues. The researcher intends to avoid this by referencing any information they lift from other researches work. The researcher will acknowledge other researchers and give them credit for their work.
4. Action Plan
ActivityTime (Weeks)Searching and identifying reliable
Secondary sources1Collection of data 2Data analysis3Validation 1Thesis writing1Total10Special ResourcesPasswords to various journal libraries as
well as data bases to get research reports from
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