Global real estate consultancy, Knight Frank, has unveiled its latest findings, pointing to a substantial contraction in residential real estate activity across Saudi Arabia. These developments are largely shaped by a combination of altering affordability conditions and an evolution in market dynamics.
Faisal Durrani, Partner – Head of Middle East Research, explained: “The volume of residential transactions in the Kingdom continues to decline, just as we had forecast, falling by almost 57% in Riyadh and 67% in Jeddah on an annualized basis, as at the end of Q1. The 40% growth in villa prices during 2022 and 50% growth in apartment values in Riyadh, for instance, has undoubtedly dented buyer demand as households are forced into a holding pattern while they save increasingly larger deposits.”
“The volume of residential transactions in the Kingdom continues to decline”
This also echoes the finding in Knight Frank’s 2023 Saudi Report, which showed a significant decline in the desire to purchase a residential property this year, which slipped to 40% from 84% in 2022.
Durrani added: “In in addition to escalating prices, it is also likely that many of those planning to transition from renting to owning have already done so. Indeed, the homeownership rate now stands at around 67%, just shy of the government’s 70% 2030 target.
“Another emerging, but overriding, factor to consider is domestic migration. Young Saudis – 56% of the population is aged below 35 – are increasingly mobile in the Kingdom, moving from city to city to take advantage of career opportunities. Most of this cohort is not necessarily focused on home ownership. In fact, nearly 68% of Saudis do not consider themselves permanent residents of the cities they live and work in, hinting strongly at the fact that they were born elsewhere in the country. This group has a far higher appetite to rent, rather than own, and some vendors have moved properties from the sales market to the leasing market to accommodate this demand, reducing available stock for purchase and contributing to the high home price environment.”
“Nearly 68% of Saudis do not consider themselves permanent residents of the cities they live and work in”
Addressing this change, Harmen De Jong, Partner, KSA – Real Estate Strategy & Consulting, says: “The notable decrease in residential transactions is a characteristic of a cyclical market, primarily propelled by the substantial rise in capital values over the past 12 to 18 months. An increase in mortgage rates, impacting the cost of ownership, and a considerable reduction in subsidies in the form of interest free loans, particularly affecting the lower income cohorts, have also contributed to the dampened enthusiasm for home purchases.”
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