In Saudi Arabia, the number of property purchases has been declining. Transactions were down 32% in the first half of 2023 compared to the same period last year.
According to Knight Frank, there were 70,000 fewer transactions between January and June than there were between the same months last year (103,000), and 34.9% fewer mortgages were also given.
According to the real estate firm, as borrowing costs rise, more prospective homeowners are anticipated to put off their purchases while they evaluate their financial situations.
“Higher mortgage rates, which jumped from 3% to 5% last year are eroding purchasing power, particularly in the villa segment, where the number of mortgages extended has fallen by 2% in the 12-months to the end of May,” Knight Frank’s Saudi Arabia Residential Market Review, Summer 2023, said.
As buyer views toward apartment living continue to change, Knight Frank reported an 8% increase in apartment-linked mortgages.
According to the research, a total of 68% of mortgages were issued for villas, 27% for apartments, and the balance was given out for residential land plots.
Despite this, according to the survey, 41% of respondents want to one day purchase a villa.
Riyadh relocations
Knight Frank claimed that one factor contributing to the slowing of demand is the 45–50% spike in housing prices that had occurred in the capital of the kingdom since January 2020.
However, as more domestic migrants and expats move to the Saudi capital, there has been an increase in demand for rental properties. According to a Knight Frank study, 62% of Riyadh residents prefer to rent rather than own their homes, and 40% of those asked said they were only there temporarily.
According to Knight Frank, 23,000 new residential housing units in developments designed to serve Riyadh’s cheap housing market were added in the first half of the year.
“As Riyadh’s population edges towards the authorities’ target of 17 million by 2030, the housing market is expected to experience sustained demand; however the nature of this demand is likely to be focused on smaller homes, apartments and rental properties specifically,” the report said.
Slower growth outside the capital
Average villa prices in Jeddah increased by just 1%, while average apartment prices rose by 2%.
In comparison to Q2 2022, there were 53% fewer home transactions recorded throughout the city, totaling 2,200 deals in the second quarter of 2023.
“The slowdown in the market highlights the affordability threshold that has been breached in Jeddah,” Knight Frank said.
The average apartment price increased by 5%, but the price of a villa decreased by 2%, with transactions also declining by 44%, in the Dammam Metropolitan Area (DMA), which is close to Dhahran, the city where Saudi Aramco is headquartered.
“The demand in the DMA is centered around apartments for ready-built units, with little to no transactions recorded in Q2 2023 for villas,” Knight Frank said.