The Impact of Property Management on the Value of Residential Product in Saudi Arabia

This paper discusses the impact of property management in maintaining the value of residential product in Saudi Arabia. The paper reviewed a comparison of two property models: the first is managed by the property management system, and the second is managed by the owner only. In addition, the field questionnaire was used and distributed to a sample of the study community consisting of 125 real estate management institutions and real estate office in Riyadh. The results of the analysis indicate that property management contributes to raising the quality of the residential product and maintaining its market value. The residential product which managed by the property management system loses 10% of its value after 5 years. On the other hand, the product that managed by the owner loses more than 50% of its real value after 5 years. The paper proposes to strengthen cooperation between governmental and private institutions to establish a Real Estate Data Center (REDC) for the classification of residential properties subject to the criteria of management, quality and economic cost.

Published by SCHOLINK INC. GDP (Alaak, 2010). The vision of the Kingdom of Saudi Arabia 2030 emphasized improving the performance of the real estate sector through increasing its contribution to the GDP, stimulating the supply, and raising productivity (Vision of the Kingdom 2030Kingdom , 2016. As shown in Figure 1: The Vision 2030 seeks to diversify sources of GDP, reduce dependence on oil revenues, and enable citizens to obtain affordable housing. Performance indicators related to the real estate sector aim to increase the contribution of this sector to GDP from 5% to 10%. Furthermore, these indicators aim to raise the annual growth rate of the real estate sector from 4% to 7% by 2020. The housing strategy has focused on bridging the gap between supply and demand in the housing market by continuing to provide housing subsidies to eligible groups (Alzamil, 2016). In this context, the [Tenth Development Plan] seeks to develop an efficient and sustainable housing sector that contributes to achieve the comprehensive urban development. This sector shall be able to enable all segments of society to access the real estate market, in which the government plays an enabling role, and the private sector has a central role in both financing and implementation (Ministry of Economy and Planning, 2017).
Property management in Saudi Arabia faces many challenges including maintaining the quality of the residential product and its suitability for Saudi families. The most common housing products for Saudi households are rented products, with occupancy rates of 43% Saudi households in 2017 (General authority for statistics, 2017). However, many real estate products are managed by non-specialized institutions or individually, which contributes to loss of market value for these products over time. The main challenges that face residential products included insufficient affordable housing supply and inflexibility of the finance and management systems of the residential product (Alzamil, 2016). The real estate sector is still suffering from the inadequacy of residential product for Saudi families due to the weakness of property management methods (Alskait & Aldegheishem, 2009). This paper highlights the impact of property management on the value of residential product within the framework of fair market in Saudi Arabia. An analysis of the current situation includes the comparison of two residential producers in Riyadh that are managed in two different ways. Finally, the paper summarizes the most impact elements of property management on the value of residential product based on the views of real estate developers in Riyadh.

Methodology
This paper adopts descriptive and comparative analysis of two residential cases in Riyadh. The first residential product is managed by a property management company. However, the second one has the same characteristics but is managed directly by the owner. The research data were obtained through in-depth analysis of a number of government reports from the high Commission for the Development of Riyadh (HCDR), General Authority for Statistics (GAS), the Ministry of Housing, and the Chamber of Commerce and Industry in Riyadh (CCIR). The community of the field study consists of 2631 real estate companies in Riyadh. The study sample was selected through the registered data of the real estate management companies, which specialize on property management in the Chamber of Commerce in

The Concept of Residential Property Management
Property Management (PM) refers to administrative processes involving the supervision of residential, commercial, or industrial property. It usually includes the management of property that owned by another party or entity (CHEN, 2018). Therefore, Residential Property Management (RPM) includes management of land and residential buildings in a manner that contributes to maintaining of buildings and organizing the leasing process. The Residential Property Management involves compliance with legal obligations between landlord and tenant in planning regulations, health and safety regulations.

The Scope of Residential Property Management
Property is an essential component of the real estate market that should be seen within the context of investment and financial planning (Šerić & Gil-Saura, 2006). The absence of property management negatively affects the physical condition of the residential product due to poor maintenance, marketing and follow-up. The concept of successful investment of a residential product includes the development of future perceptions based on the analysis of all decision-making information to shape the future performance of the object (Muyingo, 2016). Therefore, it is important that the residential properties are maintained in a sound condition to provide the greatest possible economic return. As shown in Figure 3: Residential Property Management carries out several administrative services such as: resolving disputes, management of on-site staff, improving energy efficiency, negotiations, risk assessments, and development of strategic plan (RICS, 2017).

Real estate management company 6%
Real Estate Office (Property Management) 84% Owner Property 10%

Factors Affecting the Value of Residential Product
Residential products are subject to certain factors that may affect their value or reduce them in the real estate market. Factors influencing residential property may be due to the absence of a strategic plan, poor funding, maintenance, and marketing (Muyingo, 2017). Spatial location is one of the most important factors affecting the price of residential product. Property prices close to central areas differ from properties that located on the outskirts of the city. Hui, Lau, and Khan (2011) found that property management positively affects the property prices. Residential products managed through a high-quality property management system can increase their price by 2.84 to 4.92 percent (Hui, Lau, & Khan, 2011). Heller (1998) indicated that the great challenge is to achieve the satisfaction of multiple property owners that often associated with misuse or poor maintenance of common areas such as elevators, semi-private spaces, and parking. Heller (1998) described this phenomenon as a "tragedy of the commons" because it leads to a long-term devaluation of property. However, there is a correlation between the supply and demand of the residential product, as the scarcity of the housing unit often increases its value. The low demand and the increase in the supply ratio often lead to lower real estate Preserving the value of the property prices. Also, the modification of the residential product can affect the value of the property. This modification is often done by adding new architectural elements, restoration, or reconstruction (Almgloth, 2015). Moreover, the value of a residential property is affected by the availability of facilities, infrastructure, market price, economic conditions, property status, and the surrounding environment. Finally, Figure 4: summarizes the most important factors affecting the value of residential product.

Financial Stability of the Residential Product
Habitat Agenda III Commitments [39] confirmed enable people to have adequate housing and improve the overall environment in residential neighborhoods. Everyone has the right to a "dwelling" which includes services and facilities, safe, healthy, and affordable (Leckie & Huggins, 2011, p. 88).  country (International Monetary Fund, 2011). Housing Finance Systems (HFS) vary depending on the type of housing product, lender, and government participation. In general, the diversity of housing finance systems can help provide a stable housing market. The Government is involved in the development of housing market management policies to provide tax incentives and facilities for mortgage market. However, many countries suffer from fluctuations in the prices of residential products due to gaps in the management of the real estate market, subsidy, financing, and mortgage systems (International Monetary Fund, 2011). Therefore, many countries with low ownership rates such as Germany rely on home rental support by providing incentives to developers to support rental investment.

Result
As shown in the Figure 5: two cases were selected for analysis of property management costs, maintenance costs, and net income. These cases located in the eastern sector of Riyadh, which are residential apartments in "Yarmouk Abi Refa'a Al Ansari Street" (Figure 6). The first case (residential unit No. 1) is managed by a property management system (Figure 7). The second case (residential unit No. 2) has the same architectural characteristics but managed directly by the owner (Figure 8). The results of the analysis indicate that the first case (residential unit No. 1), which is managed by a property management system, has a net annual income of $ 85,407 in 2015, and reached to $ 77,301 in 2019. In other words, net income decreased over five years just 10% (Table 2). However, the second case (residential unit No. 2), which is managed by an owner, has a net annual income of $ 104,260 in 2015, and reached to $ 57,863 in 2019. Therefore, net income decreased over five years 50% (Table 3).
As shown in the Figure 9: There is a constant rate of net income for the property that managed by the property management system. The residential units managed by the property management system maintain the long-term market value of the property through planning, operation, maintenance and evaluation. In contrast, there is a sharp decline in the net income of the property managed by the owner.
These units, although they generate good revenues at the beginning of the operation, suffer from maintaining stability in the market value due to weak management methods of the real estate product.

Figure 6. Location of Residential Units in Yarmouk District, Riyadh
Source: Field survey.  property management on the value of residential product. Property management affected the value of residential unit according to the point of view of the respondents. More than 85% of the respondents agree that the property management contributes to improving property quality, marketing methods, contract systems, rights of owners and tenants. This result helps decision-makers and property developers improve property management systems and raise quality to achieve tenant satisfaction.
As a recommendation, there are some aspects that need to be considered: 1) Developing standards for classification of property management companies to ensure the quality of real estate products in line with the economic, social and urban context.
2) The real estate development regulations should encourage investors to register and manage their properties through property management companies, in order to preserve the rights of the investor and the beneficiary.