Dubai: Is Saudi Arabia’s real estate market up for a $2 billion boost from wealthy global investors?
The property consultancy Knight Frank estimates such a bonanza coming through from rich Muslim investors who spot a chance for major investment returns in the medium-term.
The holy city of Mecca was an obvious frontrunner when it comes investment destination, with 30 per cent of those polled by Knight Frank marking it as their wish-list choice. Riyadh came in second with 25 per cent and Madinah had 19 per cent.
Saudi Arabia has been opening up its real estate sector to private investments, concurrent with the strides the Kingdom expects to make in recasting itself as one of the world’s biggest markets for FDI. In tandem, just recently, the Gulf state brought out new ‘premium residency’ options, including a property-ownership linked visa.
'Primary residence'
“1.8 million pilgrims performed Haj during 2023,” said Faisal Durrani, Partner – Head of Research at Knight Frank MENA. “For many this is a life-long ambition, which is intrinsically attached to a desire to visit and/or live in Saudi Arabia.
“The fact that 84 per cent of global HNWI interested in purchasing in Saudi would like to do so in one of the Holy Cities underscores the depth of pent-up demand for home ownership from outside the country. A
“And the demand appears to be genuine, with 48 per cent of those looking to purchase a property in Mecca intending to use it as a main residence.”
Sharp price rises
Saudi residential property market has been through sharp upward gains over a 2-year timeframe, a period when many Saudi investors entered took up home ownership for the first time. But it’s also been a time of values in main-line Saudi cities turning too expensive for many, which resulted in a decline in buying.
Total number of year-on-year real estate transaction volumes across all asset classes in Saudi Arabia was down 17 per cent during 2023, while the total value of all deals declined 9 per cent.
Property values in Mecca have risen by an average 5.5 per cent over the last 3 years, compared to 5 per cent in Madinah over the same period.
High networth investments can make a difference
This is where high-spending overseas investors can be of help. The global Muslim HNWI budgets average $4.7 million for the Holy Cities, according to Knight Frank, while 40 per cent of those considering Mecca are prepared to spend upward of US$ 5 million.
According to Durrani: “The $4.7 million average Muslim global HNWI budgets for homes in the Holy Cities will undoubtedly give further impetus to the ‘giga-project’ developers, many of whom we expect will begin marketing homes from upwards of $1 million, which sits above the bulk of domestic Saudi budgets.” (Two-thirds of Saudi’s have a home purchase budget of up to SR1.5 million.)
Quick deal making
And these investors want to settle matters ASAP; 22 per cent of HNWIs are keen to complete a purchase this year, with a further 33 per cent wanting to own property in the Kingdom in the next 12-24 months.
Do Saudi developers have the mix right?
“While the global wealthy clearly have a strong appetite to invest in the Kingdom, the challenge for developers will be to balance the expectations of the global wealthy with domestic buyers," said Mohamad Itani, Partner – Head of Residential Project Sales & Marketing, Saudi Arabia.
"For instance, 77 per cent of those wanting to buy a property in Makkah are interested in apartments, while the desire for apartment living in Madinah is even higher at 84 per cent. This is in sharp contrast to Saudi nationals, less than half of whom are interested in owning an apartment."
What high networth investors want:
- 23% of global Muslim HNWIs wanting to purchase in Mecca expect to be within walking distance to the Haram. And 63% expect direct views and to be within earshot of the Haram prayers.
- As for those wanting a Madinah property investment, 40% expect to have some degree of access to the Haram (either walking or through public transportation), and 25% expect to be within walking distance. Under half expect direct views and to be able to hear the Haram prayers.
- Potential investors have high capital value growth expectations, with 37% expecting annual price growth of 6-10% in Madinah, while nearly a third expect the same rate of increases in Mecca.
