Saudi housing market booms, but affordability crisis looms amid vision 2030

Saudi Arabia's housing program under its ambitious Vision 2030 program has come as a mixed blessing for the country's residential market. While housing finance support has led to higher home ownership as targetted, sudden spike in demand for homes is significantly driving up prices leading to affordability issues.

Even so, the market continues to buzz with all three major cities in Saudi- Riyadh, Jeddah and Dammam seeing positive year-on-year change in both volumes as well as values of residential transactions. 

Sudden transition from renting to owning driving up prices and mortgage rates

According to Faisal Durrani, partner and head of research MENA (Middle east and North Africa) for global consultancy Knight Frank, nearly 62% of Saudi nationals have reached ownership status which bodes well for the completion of the government's target of 70% home ownership rate in the country. To achieve this, the government has provided affordable financing, long-term financing at fixed rates and other tools. 

Durrani told Invezz:

Durrani adds this has caused affordability issues with mortgage rates also galloping from less than 1% about 4 years ago, to 6% today with the country mirroring the US fiscal policy like most Gulf nations. 

"So, clearly people are having to save for longer in order to be able to save enough of a deposit to transition from renting to owning," he said. 

According to the firm's 'Saudi Arabia Residential Market Review - Summer 2024', residential transaction volumes and values in Saudi Arabia increased by 48% (50,434 deals) and 64% (SAR 42.4 bn) in the last 12 months.

Banks and financial institutions granted residential mortgage loans worth SAR 7.8bn (US$ 2bn) to individuals in March 2024, marking a 13- month high (Saudi Central Bank), the report said. 

Riyadh needs more built-to-rent stock for its young professionals 

Riyadh, the capital of Saudi has registered historically high levels of the number and total value of sales, which are up by 107% and 96%, respectively, according to the Knight Frank report. 

However, there is a big, largely untapped opportunity in the city of developing build-to-rent stock as the 20-something professionals here are not looking to buy a house, but looking to rent. 

"60% of Saudi's population is aged below 30. Now, a lot of young Saudis are migrating around the kingdom in search of better employment opportunities, typically moving to Riyadh, which is the center of most economic activity," Durrani says. 

Are developers coming forward to develop such spaces? No, Durrani says, adding that is why it has been a missed opportunity so far.

While there is no data available to point out how big this market could be, Durrani says 69% of Saudis do not consider themselves to be permanent residents of the cities in which they live and work- a significant number, and this could give a hint of how big the built-to-rent market could potentially be.