Rising house prices in Saudi Arabia and a limited supply of favourable properties have led to a 32 percent decline in real estate transactions during the first half of 2023, a report finds.
“As we expected, rampant house price growth, coupled with a supply crunch and rising base rates, against a backdrop of an apparent gold rush to get on the housing ladder has driven home values well out of reach of average Saudi households,” said Faisal Durrani, Partner – Head of Middle East Research at Knight Frank.
From January until June this year, around 70,000 transactions were made, marking a significant decline from 103,000 transactions made during the same period in 2022.
The total value of transactions experienced a 28 percent drop, indicating a continued rise in unit prices across the Kingdom. The declining trend in the number of mortgages issued also reflected the market’s challenges, Knight Frank’s report found, suggesting that it decreased by almost 35 percent since last year and that the total value of mortgages issued also dropped by almost 37 percent.
House price growth across key Saudi cities
“With average monthly incomes nationwide standing at approximately SAR11,000 and at about SAR17,500 in Riyadh, it is no surprise that household income multipliers in Riyadh have climbed to 4.3 and 12.7 for apartments and villas, respectively. In Jeddah, to purchase a villa, a household needs to save its income for 14.5 years,” said Durrani.
The real estate consultancy’s research revealed the extent to which house price growth is cooling. Jeddah experienced a slower growth in prices compared to Riyadh.
Apartment values in the capital city, Riyadh, rose by 10 percent in Q2, while villa prices grew by 5 percent.
Meanwhile, average villa prices in Jeddah increased by 1 percent and apartments by 2 percent.
However, the residential market displayed a fragmented performance in the Dammam Metropolitan Area, with residential transactions declining by 52 percent over all.
“As our 2023 Saudi Report highlights, 62 percent of households are willing to spend up to SAR1.5 million on a home, which is roughly 50 percent of current prevailing villa prices. However, the cost of ownership has dampened demand, with just 40 percent of households keen to transact this year – down from 84 percent in 2022.
“Prices are unlikely to decline sharply given the rapidly increasing number of households as the popularity of multi-generational living decreases and expatriate numbers rise, so it is likely house prices will ease slightly, or stabilise, but remain on an upward trajectory over the medium to long term as Vision 2030 continues to unfold, creating demand in its wake.”
Vision 2030 homeownership goals
To cater to the supply crunch and the growing population of expats, and to achieve the targets set out by Vision 2030 of 70 percent homeownership, the Kingdom’s Ministry of Housing continues to work on providing affordable housing options. Several projects have been delivered so far this year, adding thousands of units across various cities.
“As we reflect on the transformative journey of Vision 2030, it becomes evident that one of its crucial objectives is to enhance the quality of life for all within the Kingdom. In this pursuit, the significance of residential communities cannot be overstated,” said Harmen De Jong, Partner, Head of KSA Real Estate Strategy & Consultancy.
“The emerging generation recognises the value of proximity to community amenities such as retail outlets, mosques, gyms, and more. With affordability concerns in mind, apartments have gained prominence as a viable option.
“The paradigm has shifted towards the concept of mixed-use environments, where the expectations encompass a vibrant blend of living, working, and recreational opportunities.”
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