Analyzing the Dynamics of Saudi Arabia's Real Estate Market: Insights of the Current Market and the Future of Investing in KSA

"The Greatest success story in the 21st century is Saudi Arabia and we are trying to speed it up every day."

Saudi Crown Prince Mohammed bin Salman has notably stated that the Kingdom is "the biggest success story of the 21st century." This assertion underscores the ambitious and transformative efforts underway in Saudi Arabia, particularly in the context of Vision 2030, which includes significant developments in the real estate sector and beyond.

The allure of Saudi Arabia, particularly its real estate market, has been nothing short of remarkable over the past few years. The sector has witnessed profound growth and transformation, and this rapid expansion is mirrored in the residential real estate segment, projected to grow from USD 187.20 billion in 2024 to USD 284.90 billion by 2029 at a CAGR of 8.77%. These figures underscore the dynamic and fast-paced evolution of the real estate landscape in the Kingdom, highlighting its growing prominence as a global investment hub.

Vision 2030 initiative aims to increase the real estate sector's contribution to GDP from 5% to 10%. Currently, the total value of real estate and infrastructure projects in the Kingdom of Saudi Arabia (KSA) has exceeded $1.25 trillion and there are 600,000 residential units under development, with Riyadh accounting for 18% of the total. The value of these projects is estimated to be $229 billion; this includes plans to build over 241,000 homes by 2030.

The Giga Projects in Saudi Arabia are a testament to the Kingdom's ambitious vision, with an astounding overall expenditure nearing $884 billion across all projects. NEOM stands out as the most significant investment, overshadowing Red Sea Global, which holds the second position in terms of financial commitment.

As per MEED's 2023 data, NEOM secured around $2.158 billion in investments, closely followed by Red Sea Global with $2.157 billion. Additionally, the Seven entertainment projects have attracted roughly $1.59 billion during the same timeframe. Other notable projects include Qiddiya and Roshn, which have garnered about $1.08 billion and $879 million, respectively.

Since the inception of the giga-projects and Vision 2030, NEOM has had an injection of approximately $17 billion.

Current KSA Real Estate Market Trends

In 2023, Saudi Arabia's real estate market witnessed a notable shift, with the total value of transactions decreasing year-on-year by 11% to SAR 193.45 billion, according to data from the Ministry of Justice. This shift is the result of a multifaceted set of factors impacting the real estate sector. Among these factors are the significant increases in apartment prices, which have surged by 60% in Riyadh and 20% in Jeddah over the past three years. This price escalation has not been matched by a corresponding rise in incomes, contributing to a downturn in transaction volumes. Additionally, with 60% of the Saudi population under the age of 30, there's a noticeable trend towards renting over purchasing among this younger demographic, who often relocate across the region for various employment opportunities. Furthermore, the borrowing cost has experienced a substantial hike, escalating from 0.1% in 2021 to 6% currently.

A Closer Look at the Numbers

The year saw approximately 172,070 real estate transactions, culminating in the sale of 177,500 properties. This movement in the market is a significant indicator for stakeholders, highlighting the evolving dynamics within the Saudi real estate landscape. Notably, residential property transactions dominated, accounting for 58.6% of the total deals, followed by commercial transactions.

Regional Highlights

Riyadh emerged as the most active city, representing 44% of the total transaction value and up 7% in transaction volume year-on-year, while Jeddah following at 18% of total transactions. In Riyadh, the average price per square meter for a villa is SAR 4,900 and SAR 5,140 for an apartment. In Jeddah, the average price per square meter for a villa is SAR 5,120 and SAR 4,175 for an apartment.

This geographical distribution of transactions underscores the varying levels of activity and opportunities across different cities. Riyadh is poised to play a pivotal role in Saudi Arabia's Vision 2030, serving as the anchor in the Kingdom's ambitious plan to diversify its economy and enhance the quality of life for its residents.

Implications for Future, Foreign Investors

Saudi Arabia's Vision 2030 plays a pivotal role in shaping the real estate landscape, with strategic initiatives aimed at diversifying the economy and enhancing the living standards. Residential properties will continue to dominate the market, reflecting the Kingdom's commitment to developing a robust and sustainable housing sector.

Interest in foreign investment within Saudi Arabia has been steadily growing, yet there remains a lack of accessible information regarding the intricacies of entering the KSA market, including eligibility criteria, investment opportunities, and essential legalities. A recent study by Knight Frank, titled "Destination Saudi 2024," delved into the perspectives of Global Muslim High Net Worth Individuals (HNWIs) towards investing in the Saudi real estate sector. The findings reveal a significant inclination among these investors towards the Saudi market, with 82% of international HNWI buyers expressing a desire to acquire real estate in the Kingdom. Notably, 73% of potential buyers looking to establish their primary residence in Saudi Arabia are 'very interested,' and 61% of those considering purchasing holiday homes exhibit similar enthusiasm. Furthermore, 60% perceive Saudi Arabia as a promising investment landscape, and 45% are motivated by cultural and religious factors to invest in the region.

Currently, Saudi Arabia permits foreign investment through the Premium Residence Visa, a component of the Kingdom's newly introduced visa programs aimed at bolstering foreign investment. To qualify, investors must own property in Saudi Arabia valued at a minimum of SAR 4 million, which must be free of any mortgages, officially appraised by Taqeen, and situated on developed land. The application process involves a one-time fee of SAR 4,000, and the visa's validity is directly linked to the duration of property ownership in the country.

Location, Location, Location

The Knight Frank report sheds light on the specific regions within KSA that are attracting investor interest. According to the survey, Makkah emerges as the top choice for 30% of the respondents, followed by Riyadh at 25%, and Madinah at 19%, making them the most favored investment locales. For those considering Saudi Arabia for permanent residency, Makkah is the preferred location for 33%, with Riyadh being the second choice at 27%.

Analyzing preferences by nationality reveals distinct patterns: 45% of Indonesians, 43% of Pakistanis and 42% of Turks predominantly favor Makkah. Conversely, Riyadh appeals to a majority of Algerian HNWIs (55%) and a significant portion of Indian HNWIs (43%). Jeddah, known as the Red Sea gateway city, uniquely attracts 67% of Iranian HNWIs, setting them apart from other groups. Notably, only a small fraction (6%) of the participants show interest in the Kingdom's GIGA projects.

Saudi Expatriates: Finding a Second Home in KSA

Discussing foreign investment in Saudi Arabia inevitably brings us to its substantial expatriate community, which constitutes 42% of the country's total population. Insights from the Knight Frank report which also surveyed Saudi expats, reveal that a significant 77% of expatriates in Saudi Arabia show interest in buying property there. The top city of interest to purchase was Riyadh at 44%, followed by Jeddah at 24% and in joint third place were Dammam and Madinah at 11% each.

The primary motivation for 57% of these potential buyers is the prospect of a sound investment opportunity. Additionally, 35% are driven by the desire to live closer to their workplace, while 29% cite cultural or religious reasons for their interest. Among those considering a purchase, a notable 84% plan to use the properties for personal use, with 46% looking at these properties as their primary residence and 39% aiming to provide housing for their dependents. The preference trends among these expats lean towards ready-to-move-in units, with 63% favoring them, whereas 26% show an inclination towards off-plan property investments.

In conclusion, Saudi Arabia's real estate market is undergoing a transformative era, underscored by Crown Prince Mohammed bin Salman's vision of the Kingdom as "the biggest success story of the 21st century." This transformation is vividly reflected in the real estate sector's exponential growth, with ambitious projections and strategic developments aligning with Vision 2030's goals. Despite recent fluctuations in transaction volumes, the market's robust growth trajectory, fueled by significant investments and strategic initiatives, continues to entice global investors. The evolving landscape presents a tapestry of opportunities, especially in key cities like Riyadh and Makkah, which are at the forefront of this dynamic change. As Saudi Arabia continues to open its doors wider to foreign investment, the real estate sector stands as a beacon of potential, promising lucrative opportunities for those ready to navigate its vibrant and evolving market.

Amidst this rapid growth, there is an increasing need for comprehensive data and actionable insights to guide investment and development decisions. The PropTech sector in Saudi Arabia is poised to play a crucial role in this context, offering innovative solutions to harness data effectively, providing stakeholders with the intelligence needed to make informed decisions.

As the real estate landscape continues to evolve in KSA, the integration of PropTech and big data will be instrumental in transforming data into actionable insights, driving the sector toward even greater heights of success and innovation.

About Lynnette Sacchetto: For the past 17 years, my professional journey has been deeply intertwined within the Dubai real estate market, where my passion for real estate, PropTech and big data along with my pioneering efforts, led to revolutionizing the industry by introducing open and transparent real estate data solutions. My initiatives, spanning across PropTech B2B, B2C, and public-private partnerships, have fundamentally transformed Dubai's real estate sector.

Recently, my expertise has led me to the Saudi Arabian market, where I am captivated by the unprecedented potential and the government's visionary and transformative approach. My commitment to data-driven excellence continues as I delve into this new chapter, leveraging my expertise and relentless drive to shape and influence Saudi Arabia's real estate narrative through big data and PropTech.

https://www.dhirubhai.net/in/lynnettesacchetto/