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Opening up property sales in Saudi Arabia

29 May 2024

The June 2024 Agenda package also includes:

> Riyadh reins in spending
> PPP offers budget and efficiency routes
> Aramco explores PPP pathway

 

 

One way that many of Saudi Arabia’s project developers can fund their projects is through property sales.

This business model has been used to great effect in other regional markets, most notably Dubai, where major projects such as the Palm Jumeirah, Downtown Dubai and the Burj Khalifa have all been developed using inflows of cash from property sales – much of which has been to foreign investors.

The challenge for Saudi Arabia is that its renewed drive for investment comes at a testing time for the kingdom’s property market. The total number of real estate transaction volumes across all asset classes in the country decreased by 17% in 2023 to about 177,000, according to a report by property consultancy Knight Frank.

The total value of deals also fell by 9% to SR197.7bn in 2023, mainly due to a 16% fall in the number of residential transactions, which accounted for 58.7% of all real estate deals by value.

The firm says the contraction appears to be due to reduced affordability and evolving market dynamics, as the kingdom has achieved record house price growth. Borrowing has also become more expensive, especially outside Riyadh, where lower average monthly earnings make the transition to property ownership more challenging.

Growth could be boosted by a foreign ownership law

The capital is the only sub-market in the country that has defied the trend, as transaction volumes increased by 7% compared to 2022. Riyadh is receiving a rising number of expatriate workers and an influx of workers from other parts of the kingdom as project activity ramps up in the city.

Government targets

Real estate is already a vital element of the Saudi economy, contributing about 7% of GDP in 2021, and the government aims to increase this to 10% by 2030. The objective is to increase homeownership by Saudi nationals to 70% by 2030, from 63.74% in 2023. 

Much of the growth has now been realised. When the homeownership targets were introduced in 2016, the percentage was just 47%.

The growth could be boosted by a foreign ownership law. In 2003, Dubai demonstrated the power of unleashing pent-up demand for property, and there has been speculation over the past year that Riyadh could introduce new legislation. 

At the Saudi Cityscape property exhibition in Riyadh in September 2023, project developers, including gigaproject companies, discussed the imminent implementation of a new law. If those expectations are realised, then real estate could be an even more important driver for project activity in the kingdom.

By Colin Foreman and Yasir Iqbal 

MEED's April 2024 special report on Saudi Arabia includes:

> GVT & ECONOMY: Saudi Arabia seeks diversification amid regional tensions
> BANKING: Saudi lenders gear up for corporate growth
> UPSTREAM: Aramco spending drawdown to jolt oil projects
> DOWNSTREAM: Master Gas System spending stimulates Saudi downstream sector
> POWER: Riyadh to sustain power spending
> WATER: Growth inevitable for the Saudi water sector
> CONSTRUCTION: Saudi gigaprojects propel construction sector
> TRANSPORT: Saudi Arabia’s transport sector offers prospects

 

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