Knight Frank: Rising interest rates curbing property demand in Saudi

Demand for smaller and medium-sized properties is increasing
Knight Frank: Rising interest rates curbing property demand in Saudi
Home purchase decisions in Saudi are impacted by inflation

Rising interest rates are impacting home purchase decisions in Saudi Arabia, according to a new report released by real estate agency Knight Frank.

According to the report, there is a clear sentiment divide based on age. Respondents below the age of 35 years appear to be the most significantly impacted, with 26% saying they will ‘either downsize/purchase a smaller property’ and a further 21% will ‘reconsider location’ based on affordability.

In contrast, the biggest impact on those over the age of 35 is to “reconsider financing options” (27%).

When it comes to budgets, the bulk of those below the age of 35 (62%) is prepared to spend up to 1.5 million riyals on a home purchase in 2023. This echoes the wider population, with over two-thirds of households (69%) around the country will spend less than 1.5 million riyals to buy a home.

Interestingly, aspirations continue to influence those below the age of 35, with 38% claiming they will spend between 1.5 million riyals and 4.5 million riyals – far higher than those over the age of 35 (27%).

What most households can afford will likely continue holding back the market this year as most developers, Knight Frank concluded.

Read more: Institutional support to boost Saudi housing market in 2023

Steep decline for large houses


The study further revealed that Saudi Arabia’s property market is seeing a “steep decline” in demand for large houses as more young Saudis move out of their family homes earlier to seek jobs elsewhere.

“There’s a lot of shifting market dynamics at present,” Durrani said. “We’ve got a relatively young population — 56% of the Saudi population is below the age of 35. And what we’re seeing is a deep decline in household sizes because younger Saudis are moving out of their homes earlier.”

“So we’re seeing a decline in multigenerational family living, and they are moving around the kingdom. They’re migrating internally in search of better career prospects,” he added.

Inflation affecting home ownership


At the end of 2022, the headline inflation rate in Saudi Arabia stood at 3.3%, far below levels being recorded elsewhere in the world; however, the Saudi Central Bank (SAMA), has continued to mirror US fiscal policy, boosting Interest rates in tandem with the US.

The Kingdom’s headline interest rate rose from 1% to 5% by the end of last year. The impact on mortgaged households has been clear, with the number of transactions slipping as households carefully consider balancing home ownership with their other fixed expenses. And despite moves by authorities such as the Saudi Refinance Company to boost mortgage terms to 30 years (from a maximum of 25 previously), households remain cautious, as evidenced by the results of our surveys.

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