The Three Assumptions That Decide Most Saudi Property Deals

In most Saudi property models, achievable rent, the exit value and the cost base carry the answer. These are the ways each one is got wrong and how to pin them down.

Strip a property model back and three inputs usually decide the outcome: the rent the asset can actually achieve, the value someone will pay for it at the end, and the true cost of owning it in between. Everything else is detail by comparison. The mistakes below are the ways these three get set carelessly, and each one is a mistake of process rather than arithmetic.

Why these keep happening

These three assumptions share a property that makes them dangerous: no document forces their value. A lease fixes today's rent, but not the rent you will achieve on renewal. An invoice fixes last year's cost, but not your normalised cost base. Nothing at all fixes the exit. Because they are unconstrained, they absorb whatever optimism the process contains, and because they are the largest drivers, that optimism lands directly on the decision.

1. Taking the asking rent as the achievable rent

Advertised rents are offers, not transactions. In a market where units sit unlet for weeks, the achieved rent is lower than the advertised one, and the gap is invisible from a listing portal. Building a model on asking rents means every unit in your forecast is let at a figure nobody has yet paid, and it compounds because the exit value is derived from that same rent.

• Avoid it by: Underwrite on signed and registered contracts for comparable units, supported by the subject building's own recent lettings, and treat portal asking rents only as an upper bound.
• Proof it is closed: A schedule of achieved rents for comparable units with the contract reference and date for each.

What it costs you: An income overstatement that flows into the valuation twice, once through the income line and once through the capitalised exit.

2. Letting the exit assumption be set by the entry price

The convenient way to set an exit value is to apply the same yield at which you bought to a grown income. It feels neutral and it is deeply flattering, because it assumes the market will price your asset at least as generously in five years as it does today, while also assuming the income grew. The building will also be five years older, with correspondingly less remaining life in its plant.

• Avoid it by: Set the exit yield independently, allow for the building being older, and test the whole decision across a range of exit yields rather than a point estimate.
• Proof it is closed: A table of holding period returns across at least three exit yields, with the decision stated at each.

What it costs you: The largest single line in the return, sitting on an assumption that was never tested.

3. Using the seller's cost base as your cost base

A seller's historic costs reflect how the seller ran the building, which usually included unpaid personal management, deferred servicing and sometimes no insurance. Those omissions are not available to you, and the first year of ownership typically corrects them all at once. Adopting the historic statement as your forecast is adopting someone else's operating model along with its gaps.

• Avoid it by: Normalise every cost line to an arm's length figure with your own quotations for management, insurance and servicing, and add the catch-up spend explicitly.
• Proof it is closed: An adjustment schedule from the historic statement to your normalised base, with a quotation behind each change.

What it costs you: A first year in which costs exceed the forecast by a wide margin, taking the distribution with them.

4. Growing rent and holding costs flat

It is remarkably common for a model to escalate rent each year while leaving the cost schedule constant. The result is a margin that widens year after year for no reason, which inflates both the income and the capitalised exit. If you believe rents rise, you should also believe that labour, utilities, insurance, servicing and replacement costs rise.

• Avoid it by: Escalate costs explicitly, and where you escalate rent faster than costs, write down the reason and the evidence.
• Proof it is closed: Both escalation assumptions visible on the face of the model with a note justifying any difference.

What it costs you: A compounding overstatement that grows with every year of the modelled hold.

5. Hiding the three assumptions inside the arithmetic

When the key inputs are buried among dozens of cells, nobody can challenge them, including you. Reviewers end up checking formulas instead of judgement, which is the least valuable form of review. The purpose of a model is to expose the assumptions that carry the decision, not to bury them under precision.

• Avoid it by: Put achievable rent, exit yield and the normalised cost base on a single assumptions page, each with its source and the name of the person who owns it.
• Proof it is closed: A one-page assumptions sheet that a reviewer signs before the model is used to support an offer.

What it costs you: A review process that produces confidence without producing scrutiny.

6. Testing one assumption at a time

Single-variable sensitivity is useful but incomplete, because bad years do not arrive one variable at a time. The letting market softens, so rent falls and voids lengthen; the same conditions make buyers cautious, so exit yields widen; and cost inflation does not pause to help. The combination is what threatens the deal, not any individual input.

• Avoid it by: Build at least one combined downside case in which rent, voids, costs and the exit yield all move adversely together, and ask whether the deal survives it.
• Proof it is closed: A stated downside case with all three assumptions moved at once and the resulting return and cover shown.

What it costs you: A false sense of resilience, because each input looks survivable alone while the realistic combination is not.

A short check before you sign

• Achievable rent is evidenced from signed contracts, not from listings or the seller's expectations.
• The exit yield is set independently of the entry yield and the asset is modelled as older at exit.
• Every cost line is normalised with a quotation, and the catch-up spend appears as its own item.
• Rent and cost escalation are both visible and any difference between them is justified.
• The three assumptions sit on one page with a named owner for each.
• A combined downside case exists and the decision has been stated against it.

If it has already happened

If you are holding an asset bought on assumptions that have not held, the useful step is to re-underwrite it from today as though you were buying it. Measure the rent you are actually achieving, rebuild the cost base from your own invoices, and set an exit view from current evidence. That gives you a hold-or-sell comparison on honest inputs, and it usually identifies one specific lever, rent positioning, cost structure or capital spend, that moves the outcome most. Regulatory and tax inputs should be re-checked at the same time, since they are amended periodically and the advice that applies to your structure comes from a licensed adviser.

Domira builds the numbers on a Saudi property with you before you commit: rent and cost evidence, condition and capital expenditure, the appraisal and the sensitivities that decide whether the deal survives a bad year. The investment decision stays yours, and so does the advice of your licensed tax and legal advisers.