Interest in home ownership in Saudi Arabia has flopped from 84% to 40% in just one year amid rising house prices and changing market dynamics.
Knight Frank said there had been a substantial contraction in residential real estate activity, shaped by factors including a more mobile population of young Saudi citizens and buyers taking longer to save larger deposits to buy a home.
Faisal Durrani, Knight Frank’s head of Middle East research said the volume of residential transactions in the kingdom has continued to decline, falling by almost 57% in Riyadh and 67% in Jeddah on an annualised basis as at the end of Q1 2023.
“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,” he said.
As well as prices, it is also likely that many of those planning to transition from renting to owning have already done so, as the country moves closer to its target of 70% ownership under Vision 2030, now standing at 67%.
“Another emerging, but overriding, factor to consider is around 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,” he said.
Nearly 68% of Saudis do not consider themselves permanent residents of the cities they live and work in, Durrani said.
Some vendors have moved properties from the sales market to the leasing market due to demand.
Harmen De Jong, Partner, partner, KSA real estate strategy and consulting said the decrease in residential transactions is characteristic of a cyclical market primarily propelled by the 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,” De Jong said.
(Reporting by Imogen Lillywhite; editing by Daniel Luiz)