The Saudi capital led the residential market boom in Saudi Arabia in H2 of this year, according to a report from Knight Frank.
The number of residential transactions in Riyadh went up by 77% from a year ago, while the number of homes sold in Jeddah rose by 44%, the report said.
Faisal Durrani, partner and head of Middle East research at Knight Frank said: “In the residential market, the government’s various initiatives, such as Sakani and Wafi, are continuing to contribute to an acceleration in home-ownership rates across the Kingdom.”
Government initiatives are supporting the residential market with 155,000 new homes scheduled to be completed before the end of 2023 across Riyadh, Jeddah, and the Dammam Metropolitan Area, 100,000 of which are in Riyadh alone.
Apartment values in the capital grew by 7.6% last year, however rental rates have continued to decline outside of Riyadh as demand remains muted.
The Riyadh office market is facing similar pressures to the rest of the world as tenants look to “rightsize” following the pandemic, Durrani said.
While Grade A office rents are being supported in Riyadh by demand from public and quasi-public sector entities, growing new supply “is quickly emerging as an area of concern,” he said.
Knight Frank has identified almost 1.8 million sqms set for completion by the end of 2023, 56% of which is planned for Riyadh.
“It’s likely that Grade B buildings will feel the greatest downward pressure on rents as the flight to quality intensifies, particularly in cities like Riyadh and Jeddah, which will see a 25% and 36% increase in total office supply in the next three years,” Durrani said.
Knight Frank expects total office stock in Riyadh and Jeddah to reach 5.3 million sqm and 1.8 million sqm respectively by the end of 2023.
Across the kingdom, 25,700 mortgage contracts were issued in April, and 38,285 mortgages were issued for purchasing villas and townhouses in the first quarter of 2021, with 48 billion SAR ($12.8 bn) worth of residential mortgages for homes and land issued, both five-year highs.
“ Presently at 60%, the government has already surpassed its 2020 target by 8% and is well on course to achieving 70% home-ownership by 2030,” Durrani said.
The kingdom has a tremendous home-building program, which aims to add over 500,000 units to Riyadh’s housing stock by 2030 alone.
“Indeed, at 115,000 transactions, sales volumes between January and May are on par with the same period in 2019 and are in fact 49% higher than January to May 2018. Homebuyers and lenders are clearly feeling more confident about life as the post-COVID recovery starts to set in,” Durrani said.
Knight Frank said that 1.1 million families have benefitted from the Sakani program since its launch five years ago.
Real estate financing
The real estate price index in Saudi rose by 0.4% in Q2 of 2021 compared to the same period of the previous year, official data showed recently.
The statistics issued by the General Authority for Statistics showed a 0.8% increase in the residential real estate prices in the second quarter while prices of commercial and agriculture properties declined by 0.5% and 0.2% respectively.
The report said a 1% hike in the prices of residential plots jacked up the prices of residential properties.
Off-plan property sales represent a growing sector of the Saudi real estate market.
Knight Frank said off-plan units represent around 9% of total existing housing stock, but a massive 60% of total future supply in Saudi.
Mortgage lending in Saudi Arabia increased 27% this year through May, as interest rates decreased to between 1% and 4.9%, compared to about 6% early last year.
Residential real estate financing contracts offered to individuals by local banks reached 133,006 through May, with a value of $18.5 bn, according to data from the Saudi Central Bank (SAMA).
Real estate financing grew by 50% compared with the same period in 2020 when $121.6 bn was lent via 104,000 contracts.