High housing prices in Saudi Arabia over last 2 years weighed on demand: Knight Frank

Riyadh city

Demand for residential properties in Saudi Arabia dropped as home prices continued to increase over the last two years, according to a report by global consultancy Knight Frank.

In its survey of 1,014 Saudi-national households, carried out in partnership with YouGov, Knight Frank found that Saudis’ appetite to purchase a home, either as a first- or second-time homebuyer, diminished in the past 12 months. Demand for housing in 2023 slumped to 40%, compared to 84% last year.

There is still room for more housing developments in the Kingdom, in line with Saudi Vision 2030. This is to also meet demand from potential buyers abroad.

In its survey, Knight Frank said that 84% and 85% of residents in Riyadh and Jeddah, respectively, eye homeownership in these cities in 2023. However, high housing prices represent an obstacle.

As many as 50% of households that permanently moved to Riyadh plan to spend SAR 750,000 on homebuying this year, with the percentage rising to 60% in Jeddah.

Domestic migration has been a key driver of housing demand in the Kingdom. Real estate developers have great opportunities to cater for the house rentals market, as 68% of “career migrants” indicated that they will relocate upon finding "the right job.”   

“Some vendors have cottoned on to this trend and moved their homes from the sales market to the rental market, eroding sales stock, which has contributed to the substantial price increases registered recently,” survey analysts said.

There is a possibility to develop a build-to-rent market (BtR), to cater to the needs of the Saudi youth, without disrupting the sales market, they added.

Higher prices of land plots, raw materials and labor shortage represent challenges ahead of the real estate developers to launch homes at affordable prices.

Housing prices will unlikely drop, Knight Frank said, expecting recession to continue as demand grows.