Demand for residential properties in Saudi Arabia slumped in the first quarter because of higher prices and lower subsidies as well as domestic migration in the kingdom, according to Knight Frank.
Residential transactions in Riyadh fell by nearly 57 per cent on an annual basis in the first three months of the year, and in Jeddah by 67 per cent, the consultancy said in a report on Thursday.
A 40 per cent growth in villa prices last year and a 50 per cent growth in apartment prices in Riyadh “undoubtedly dented buyer demand as households are forced into a holding pattern while they save increasingly larger deposits”, said Faisal Durrani, partner, head of Middle East research at Knight Frank.
“In addition to escalating prices, it is also likely that many of those planning to transition from renting to owning have already done so,” he said.
The recent decline in home ownership demand is also due to domestic migration, the report found.
Young Saudis, below the age of 35, make up more than half the country’s population and they are increasingly mobile as they move cities to take advantage of career opportunities, Knight Frank said.
Nearly 68 per cent of Saudis do not identify as permanent residents in their current cities, suggesting they were born elsewhere in the country.
“This group has a far higher appetite to rent, rather than own, and some vendors have moved properties from the sales market to the leasing market to accommodate this demand, reducing available stock for purchase and contributing to the high home price environment,” Mr Durrani said.
Saudi Arabia’s home ownership rate is about 67 per cent, close to the government’s 2030 target of 70 per cent, the consultancy said.
The kingdom, which is building several mega projects, is increasingly viewed as an attractive real estate market by GCC investors.
Saudi Arabia is focused on diversifying the economy under its Vision 2030 agenda, which aims to develop local industries and cut its dependence on hydrocarbons.
The country plans to turn Riyadh into one of the top 10 city-economies in the world and is investing $220 billion to transform the Saudi capital.
"The notable decrease in residential transactions is a characteristic of a cyclical market, primarily propelled by the substantial rise in capital values over the past 12 to 18 months,” said Harmen de Jong, partner and head of real estate strategy and consulting for Saudi Arabia at Knight Frank.
“An increase in mortgage rates, impacting the cost of ownership, and a considerable reduction in subsidies in the form of interest-free loans, particularly affecting the lower-income cohorts, have also contributed to the dampened enthusiasm for home purchases.”