Real estate transaction volumes and values fell in Riyadh in the third quarter amid an increase in the “gulf” between affordability and buyer expectations.
Knight Frank said the total volume of homes sold in Riyadh dipped by 30% in the year to Q3 2022, reaching 7,750 transactions, compared with 11,074 transactions last year.
The total value of transactions declined by 20% in the capital to around SAR 8 billion ($2.13 billion), the real estate company said.
The value of residential real estate transactions across Saudi Arabia grew by 6% in the third quarter of 2022, but the volume of sales slipped by 24%.
Faisal Durrani, partner, head of Middle East research, explained: “The affordability gulf between buyer expectations and the significant house price increases registered in cities across the kingdom is underpinning the slowing in the number of home sales.”
Durrani said average apartment values in Riyadh are up 30% in the last 12 months, and by 40% in desirable suburbs in the north of the city, while villa prices in the capital are up 20%.
He said despite a pipeline of 200,000 homes for the capital by 2030, Knight Frank estimates that the city will face a deficit against a spike in population of 17 million by 2030, up from the current 7.5 million.
He added: “To exacerbate matters, anecdotal evidence suggests some sellers are opting to lease their inventory to take advantage of the influx of domestic and international migrants being drawn to the city for work, which is further eroding the sales supply.”
Knight Frank’s Harmen de Jong, partner, real estate strategy and consulting, said the country’s Ministry of Housing’s efforts to provide affordable housing under Vision 2030 are progressing.
“However, rising land and construction costs are posing challenges to some developers looking to partner with the government, with profit margins being rapidly eroded and the viability of some projects being reassessed, according to anecdotal evidence,” he said.
“That said, projects where the bulk of the units were sold off-plan are progressing as developers are being incentivised to complete developments as scheduled, or even ahead of plans.”
The number of mortgages for apartments increased by 12% to August 2022, while the number for villas declined by 45%, Knight Franks said.
Durrani said living in apartments is growing in popularity while the average Saudi household size is declining, as young nationals opt to move out of their parents’ homes earlier.
“In a country where 56% of the population is below the age of 35, this is a significant change and will likely be a substantial source of new residential demand going forward,” he said.
In Jeddah, house prices in have risen at a slower place, with villa prices up 3% during the third quarter and apartment prices up to 6%. The number of sales declined by 19%.
(Writing by Imogen Lillywhite; editing by Daniel Luiz)