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The number of people buying homes in Saudi Arabia has continued to fall, with transactions down 32% in the first half of 2023 compared to the equivalent period last year.
Knight Frank said there had been 70,000 sales from January to June, down from 103,000 last year, with the number of mortgages issued also declining by 34.9%.
The real estate company said as the cost of borrowing increases, more potential homebuyers are expected to go into a holding pattern while they assess their financial positions.
“Higher mortgage rates, which jumped from 3% to 5% last year are eroding purchasing power, particularly in the villa segment, where the number of mortgages extended has fallen by 2% in the 12-months to the end of May,” Knight Frank’s Saudi Arabia Residential Market Review, Summer 2023, said.
Knight Frank said there had been an 8% increase in apartment-linked mortgages as buyer attitudes towards apartment living continues to shift.
The total share of mortgages issued for villas and apartments was around 68% and 27%, respectively, with the remaining allocated to residential land plots, the report added.
Despite that, 41% of those surveyed have the ultimate goal of owning a villa, the report said.
Riyadh relocations
In the kingdom’s capital, house prices have increased by 45-50% since January 2020, which Knight Frank said could be one reason behind dampening demand.
But the arrival of more domestic migrants and expats to the Saudi capital has started to create rental property demand, with Knight Frank research showing 62% of Riyadh’s residents prefer to rent rather than own, as 40% of those surveyed consider themselves temporary residents.
Knight Frank said residential housing projects intended to cater to the affordable market in Riyadh had been added during the first half of the year, totalling 23,000 units.
“As Riyadh’s population edges towards the authorities’ target of 17 million by 2030, the housing market is expected to experience sustained demand; however the nature of this demand is likely to be focused on smaller homes, apartments and rental properties specifically,” the report said.
Slower growth outside the capital
In Jeddah, average villa prices grew marginally by 1% while average apartment prices increased by 2%.
The number of residential transactions registered across the city declined by 53%, dropping to 2,200 deals in the second quarter of 2023, compared with Q2 2022.
“The slowdown in the market highlights the affordability threshold that has been breached in Jeddah,” Knight Frank said.
In the Dammam Metropolitan Area (DMA), which neighbours the home city of oil giant Saudi Aramco, Dhahran, average apartment prices grew by 5%, while villa prices fell by 2%, with transactions also falling by 44%.
“The demand in the DMA is centred around apartments for ready-built units, with little to no transactions recorded in Q2 2023 for villas,” Knight Frank said.
(Reporting by Imogen Lillywhite; editing by Brinda Darasha)
