Riyadh | Saudi Arabia: The Saudi residential real estate market has experienced a 6% rise in the total value of residential transactions, albeit the number of deals has slipped, with the volume of home sales this year falling by 24%, according to Knight Frank.

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. Transaction volumes however are still rising and are in fact 6% up compared to this time last year, highlighting the pace of house price growth being experienced around the Kingdom. Indeed, in Riyadh, average apartment values are up 30% in the last 12 months and this is even higher at around 40% for some of the most desirable suburbs in north Riyadh. Villa prices in the capital too have risen by 20%. 

“Crucially, despite the enormous pipeline of around 200,000 new homes for the capital by 2030, price growth remains on a sharp upward trajectory. Our estimates suggests that Riyadh is expecting to face a deficit when factoring for the expected spike in population to 17 million by 2030, from 7.5 million today. 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 says rising business activity in Riyadh and the increase in total employment in the capital, which is driving a separate shortage of prime office space, is boosting demand for residential units. In fact, employment levels in Riyadh will have increased by around 5% by the end of 2022, with a further rise of 3% forecast for 2023 (Oxford Economics).

The total volume of homes sold in Riyadh dipped by 30% in the year to Q3 2022 reaching 7,750 transactions, compared to 11,074 transactions last year. As a result, the total value of transactions declined by 20% to around SAR 8 billion, reflecting the price growth, according to Kight Frank’s analysis.

Affordability is a critical factor in the Saudi residential landscape and Knight Frank points to moves by the Ministry of Housing to help alleviate the financial burden for prospective buyers. 

Harmen de Jong, Partner – Real Estate Strategy & Consulting added: “The Ministry of Housing’s efforts to provide affordable homes is progressing as initially laid out in Vision 2030 and this is evidenced by the success and popularity of schemes launched by ROSHN in Jeddah and Riyadh. 

“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. 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”.
Across the Kingdom, the total number of mortgages linked to apartment purchases increased by 12% in the year to August 2022, compared to a 45% decline for villas. 
Besides the affordability barrier, the changing lifestyle is also contributing to the shifting demand dynamics, particularly among young Saudis. Cultural and social acceptance of apartment living is certainly playing an important role in boosting their popularity along with obvious cost saving benefits Durrani said, “In addition, the average Saudi household size is declining as young nationals are opting to fly the nest at a younger age, highlighting the decline in the popularity of multi-generational living. 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”.

The total number or residential mortgages issued has been declining since Q3 2021. The rising affordability challenges, Knight Frank highlights, has even prompted the Saudi Real Estate Refinance Company (SRC) to amend the tenure of their fixed-term products from 10-25 years, to up to 30 years.

At the top end of the budget spectrum, developers are rushing luxury homes to the market to cater to the high levels of demand for luxury living. 

De Jong continued, “The popularity of apartments has been seeing a substantial increase in demand over the past few years. Luxury apartments and particularly branded residences are highly sought after in Saudi Arabia, especially amongst HNWI (High-Net-Worth Individuals) and second home buyers. Developers are responding by partnering with international hoteliers, such as Four Seasons and Raffles, both of whom are for instance, incorporating private residences within their beachfront developments in Jeddah to meet the rising demand”. 

Echoing Riyadh, house prices in Jeddah have also risen, albeit at a slower pace, according to Knight Frank.

Average villa prices grew at an annual rate of 3% during Q3 2022, while average apartment prices were up by 6% during the same period. 

The number of home sales in the year to Q3 2022 saw a decline of 19%, falling to 3,711 deals. Despite this, the value of transactions increased by 30% during the same period. This underscores the significant price growth that the coastal city has witnessed over the past year.

“Real estate developers in Jeddah have been racing to complete apartment projects to capitalise on the demand for community apartment living. Indeed, developments like Jeddah Central and Jeddah Downtown plan to centre their plans around apartment living, which is very much in vogue”, Durrani pointed out.

Looking forward, Knight Frank says that the upcoming residential pipeline is dominated by Sakani-linked projects, such as Bouvardia City and Venan located in Al-Jawhara suburb which is expected to add around 4,200 units to the city’s supply. Overall, Knight Frank forecasts that Jeddah’s residential supply will grow by around 2% by 2023.