Dubai: Demand for home purchases among Saudis has dropped significantly after property values recorded up to 45 per cent increases in high-demand locations.
Potential buyers are finding that these increases are pushing them out of the affordability range. “With villas in Riyadh and Jeddah standing at 13.3 and 15.1 times annual incomes, affordability thresholds have been exceeded,” said Faisal Durrani, Partner – Head of Middle East Research at Knight Frank.
Typically, six-times annual incomes is deemed as favourable to get more people thinking of buying homes. But the ‘last time affordability ratios in Saudi stood at these levels was in 2016, which also coincides with the last market peak’, said Durran.
In its survey of 1,014 Saudi households, carried out with YouGov, Knight Frank has found that Saudi households’ appetite to purchase a home - either as first-time buyers or as second homeowners - slowed over the last 12 months. Demand to buy a home in 2023 has slipped to 40 per cent, compared to 84 per cent last year.
Villa prices in Riyadh have risen 45 per cent over the last two years, where it costs over SR5,000 per square metre – the highest since 2016.
“The dream of homeownership - as well as the desire to own a second home - is forcing households into a holding pattern,” said Durrani. “Indeed, the total number of homes sold in Riyadh fell by 34 per cent last year, while in Jeddah there has been a fall of 16 per cent.”
Emphasis on building new homes
In the recent past, Saudi Arabia has assigned the highest priority to expand the home ownership stats in the country. Several initiatives have been put through, including support on mortgages and getting developers who own tracts of unused land to build on them. Also, some of the major new destination creation in the Kingdom has focussed extensively on adding new homes.
“The challenge for developers is clear - soaring land prices, coupled with growing costs of raw materials and a shortage of labour is making it ever more challenging to offer homes that are classes as ‘affordable’,” said Durrani. “The opportunity for the market we see in the mainstream residential sector is to build smaller homes.”
Buyers are out there
“There is still a vibrant market for developers too," he added. "Those who call some of the Kingdom’s biggest cities home still have a very strong desire to own a property in their hometowns. Indeed, our analysis shows 84 per cent of Riyadh’s residents and 85 per cent of Jeddah-ites are interested in purchasing a home in their respective cities this year, but high costs have become a barrier, with 28 per cent citing this as a key hurdle.”