Global real estate consultancy Knight Frank has released its Saudi Residential Market Review – Summer 2023. According to the report, the residential sector experienced a significant decline in transactions during the first half of 2023, with a 32% decrease compared to the previous year.
The report reveals that approximately 70,000 transactions were recorded between January and June, marking a notable drop from the 103,000 transactions observed during the same period last year.
The total value of transactions experienced a slower decline of 28% during the same period, indicating a continued rise in unit prices across the Kingdom. The declining trend in the number of mortgages issued also reflects the market’s challenges, with a 34.9% decrease compared to the previous year, accompanied by a decline of 36.9% in the total value of mortgages issued.
Faisal Durrani, Partner – Head of Middle East Research, said: “As we expected, rampant house price growth, coupled with a supply crunch and rising base rates, against a backdrop of an apparent gold rush to get on the housing ladder has driven home values well out of reach of average Saudi households.
“With average monthly incomes nationwide standing at approximately SAR 11,000 and at about SAR 17,500 in Riyadh, it is no surprise that household income multipliers in Riyadh have climbed to 4.3 and 12.7 for apartments and villas, respectively. In Jeddah, to purchase a villa, a household needs to save its income for 14.5 years.”
Knight Frank’s analysis reveals the extent to which house price growth is cooling, with Jeddah, for instance, experiencing slower growth in prices compared to Riyadh. Average villa prices in the Red Sea city marginally increased by 1%, while average apartment prices rose by 2% annually.
In Riyadh, apartment values increased by 10% in Q2 2023
In Riyadh, meanwhile, apartment values increased by 10% in Q2 2023 compared to Q2 2022, while villa prices grew by 5% over the same 12-month period.
In the Dammam Metropolitan Area, the residential market displayed a fragmented performance. Transactions in the DMA saw an annual decline of 44% in the number of residential transactions and a 52% decline in the total value of transactions recorded in the year to Q2 2023.
To meet the growing demand and achieve Vision 2030’s target of 70% home-ownership, the Ministry of Housing continues to work on providing affordable options. Several projects have been delivered in 2023, adding thousands of units across various cities, such Al-Nayfah Residential Compound and Jawharat Al-Sahab in Riyadh.
Echoing on the sentiment of Vision 2030, Harmen De Jong, Partner, Head of KSA Real Estate Strategy & Consultancy: “As we reflect on the transformative journey of Vision 2030, it becomes evident that one of its crucial objectives is to enhance the quality of life for all within the Kingdom. In this pursuit, the significance of residential communities cannot be overstated.
“The emerging generation recognizes the value of proximity to community amenities such as retail outlets, mosques, gyms, and more. With affordability concerns in mind, apartments have gained prominence as a viable option. The paradigm has shifted towards the concept of mixed-use environments, where the expectations encompass a vibrant blend of living, working, and recreational opportunities.
“When contemplating a transition to an apartment, they expect a plethora of accompanying advantages, including reduced commuting time, easy access to family and amenities, enhanced security, and more. While developers are diligently addressing this discerned market gap, we must not overlook the reality that a significant portion of Riyadh’s housing stock is outdated and will inevitably require replacement. The modernization of residential infrastructure remains a paramount task in meeting the evolving needs and aspirations of our society.”
“The emerging generation recognizes the value of proximity to community amenities”
Outlook
Looking ahead, Knight Frank forecasts a stabilisation in prices as demand continues to rise.
Durrani explained: “As our 2023 Saudi Report highlights, 62% of households are willing to spend up to SAR 1.5 million on a home, which is roughly 50% of current prevailing villa prices. However, the cost of ownership has dampened demand, with just 40% of households keen to transact this year – down from 84% in 2022.
“Prices are unlikely to decline sharply given the rapidly increasing number of households as the popularity of multi-generational living decreases and expatriate numbers rise, so it is likely house prices will ease slightly, or stabilise, but remain on an upward trajectory over the medium to long term as Vision 2030 continues to unfold, creating demand in its wake.”