Apartment sales prices in Saudi Arabia rose at their fastest rate in five years - 17 percent over 12 months – with 45,000 transactions during the third quarter of 2021, Knight Frank said in a report.

Price increases were highest in the capital Riyadh (17 percent) followed by Jeddah (12 percent).

Knight Frank attributed the increase to government initiatives to increase home ownership - Wafi and Sakani - with 160,000 households benefitting from them in the first half of 2021. 

The real estate company said villa price growth is starting to slow, which may be linked to emerging affordability issues, combined with other structural changes in the market.

Faisal Durrani, partner, head of Middle East Research, Knight Frank, said: “Counterintuitively, home ownership has actually become more affordable since the launch of the National Transformational Plan.

“Two-bedroom apartments for instance, on average, cost 2.4 times annual incomes, compared to a multiplier of 2.7 back in 2016, well within globally accepted affordability thresholds.

“While villas too have become more affordable, they can still cost anywhere between 7-12 times annual incomes.”

As well as affordability challenges, social changes are expected to drive demand away from traditional standalone villa properties, with smaller units, said Knight Frank.

Durrani said it was now becoming more ‘socially acceptable’ for a family to buy an apartment as their first home, and the younger demographic of the country, with 56 percent below the age of 35, is less likely to be in favour of multi-generational living, creating more demand.

“Furthermore, with job creation rates accelerating in the Kingdom’s economic heart, Riyadh, demand for single-person dwellings is likely to accelerate, hinting at the start of a structural shift in the market’s demand dynamics,” he said.

Knight Frank said its outlook for the Riyadh residential real estate was buoyant, with 730,000 homes in the supply pipeline by 2030, a shortfall of at least 420,000 homes.

Apartment prices in the Dammam Metropolitan Area (DMA) have risen by 5.5 percent in the year to Q3 2021, while average villa prices have declined by 1.9 percent over the same period.

However, developers are responding with a growing number of townhouse projects emerging as an alternative option for first-time buyers, Knight Frank said.

(Writing by Imogen Lillywhite; editing by Seban Scaria)

Imogen.lillywhite@refinitiv.com

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