Stock - Saudi economy / Riyadh skyline
Saudi Arabia is in the midst of a never before seen construction boom. Developers are rushing out with new launches - but many buyers remain on the sidelines. Image Credit: Bloomberg

Dubai: Home buying activity in Saudi Arabia has taken a deep dive in the first three months as soaring prices and rate increases cut into demand. This meant, new deals dropped nearly 57 per cent in Riyadh and by 67 per cent in Jeddah during the period, says a new Knight Frank update.

This correlates to 40 per cent growth in villa prices in Riyadh during 2022 and by a steeper 50 per cent on apartments. Even as the government prioritises buying by its nationals, the rate at which demand has spurred home prices is now drastically weighing on demand.

“Households are forced into a holding pattern while they save (for) increasingly larger deposits," said Faisal Durrani, Head of Middle East Research at Knight Frank. "In addition to escalating prices, it is also likely that many of those planning to transition from renting to owning have already done so. Indeed, the home ownership rate now stands at around 67 per cent, just shy of the government’s 70 per cent 2030 target."

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Whatever the case, these factors will place the onus on developers to come up with means to offset the price hurdle. The market could see more end-user/investor financing activity from developers, and mortgage financiers too could come up with support. Even though there are limits to what they can do with all the rate hikes that have happened before.

An increase in mortgage rates, impacting the cost of ownership, and a considerable reduction in subsidies in the form of interest-free loans, particularly affecting the lower-income cohorts, have also contributed to the dampened enthusiasm for home purchases

- Harmen De Jong, Partner, KSA – Real Estate Strategy & Consulting, Knight Frank

A 'moving' resident base

Young Saudis are mobile and they are letting that decide where they want to live, rent or buy a home. (About 56 per cent of the Kingdom's population is under 35 years.)

They are 'moving from city to city to take advantage of career opportunities', said Durrani. "Most of this cohort is not necessarily focussed on home ownership.

"In fact, nearly 68 per cent of Saudis do not consider themselves permanent residents of the cities they live and work in, hinting strongly at the fact that they were born elsewhere in the country.

"This group has a far higher appetite to rent - rather than own. Some vendors have moved properties from the sales market to the leasing market to accommodate this demand, reducing available stock for purchase and contributing the high home price environment.”