According to a recent report from S&P, higher off-plan sales are anticipated in Saudi Arabia, which will increase developers’ revenue and profit.
According to the rating agency, off-plan development offers the ease of pre-financing construction by speeding up cash collection and lowering developer risk, which could help the sector’s funding needs.
In the first half of 2023, off-plan transactions rose by 52% throughout the kingdom.
“We expect the strong growth will continue, supported by a reported 9% increase in off-plan developer numbers over the same period.”
Five years ago, Saudi Arabia implemented regulations governing off-plan sales through the government-initiated Wafi program.
Because many buyers prefer a fully completed home, lack of trust and knowledge of the process, and rising interest rates, this segment is growing but not upending the market, according to S&P.
By the end of the decade, there will be substantial financing needs due to the previously unheard-of scale of Saudi Arabia’s announced real estate projects and the country’s anticipated population growth.
S&P anticipates that every player in the market will seek out fresh capital, which will result in the sovereign, different government organizations—such as the Public Investment Fund—and real estate firms issuing large amounts of debt each year.
As a result, the agency predicts that Saudi corporations will keep expanding the range of funding sources they use, speeding up the growth of the domestic capital market, and increasing their reliance on foreign debt.
According to the rating agency, there is less chance of sudden fluctuations in demand that might put pressure on prices because Saudi Arabia’s real estate market is fundamentally more stable than Dubai’s.
The larger and more stable population of the kingdom is the reason behind the demand for real estate, according to the report.
In Saudi Arabia, the percentage of foreigners is 42%, compared to over 90% in Dubai. Thus, a possible decline in the number of foreigners residing in the Kingdom, especially during periods of economic downturn, is unlikely to have a significant effect on property values.
Furthermore, the government’s numerous initiatives, particularly its flagship Vision 2030 target of 70% home ownership by Saudi nationals, support the demand for housing.
“We therefore expect the government will continue to support new housing supply and the funding for it,” S&P stated.
