The Saudi residential real estate market is projected to maintain its growth trajectory, driven by ambitious government initiatives and shifting consumer preferences, a new report revealed.
As noted by S&P Global, overcoming affordability challenges and execution risks is critical, particularly amid the prevailing macroeconomic pressures and high interest rates.
Residential prices throughout Saudi Arabia have experienced significant increases, driven by government financing support and escalating demand. The value of new mortgages issued by banks surged 17 percent to SAR91 billion ($24.3 billion) in 2024, attributed to the Saudi central bank’s decision to cut interest rates by 100 basis points (bps) in alignment with the Federal Reserve. Initiatives such as the government-backed Saudi Mortgage Guarantees Services Company (Dhamanat), which provides mortgage guarantees and additional services, are also propelling the surge in home financing for low-income Saudi citizens. The rise in off-plan residential projects is expected to yield a greater share of off-plan mortgages.
Affordability challenges
The government is the primary catalyst for growth in the residential real estate sector, with ambitious home ownership targets (70 percent by 2030, with 65.4 percent achieved in 2024) and substantial funding support for nationals. Global trade tensions are amplifying risks, including slower economic growth, increased inflation, and, most critically, rising oil prices. Nonetheless, Saudi Arabia’s population growth, initiatives related to Vision 2030, and supply shortages in major urban centers are likely to continue fueling the market.
Increasing residential prices and rents in key cities raise important affordability concerns. Traditionally, Saudi nationals have depended on family funds and personal financing from banks. However, in recent years, mortgages from Saudi banks have emerged as the primary source of real estate financing, growing to approximately $180 billion, or 23 percent of all loans, by the end of 2024. Anticipated interest rate cuts are expected to stimulate mortgage growth following a moderate slowdown in 2022-2023. It is also noted that off-plan mortgages are becoming standard, which may expose banks to developers’ execution risks. The premium residency visa program for non-Saudis has yet to significantly impact residential growth, likely due to the substantial minimum investment requirement of SAR4 million associated with one of the visa options.
Supply projections
The government has partnered with developers to initiate projects across Saudi Arabia. The total residential supply in the country’s five major cities (Riyadh, Jeddah, Dammam, Mecca, and Madinah) reached 3.5 million units in 2024. According to Knight Frank’s analysis, this figure is projected to approach 3.9 million units by the end of 2028, reflecting the government’s ongoing commitment to enhance housing availability. Additionally, the government plans to allocate land annually for affordable housing, aiming to increase accessibility and stabilize prices.
A robust increase in residential transaction volumes and values is expected in 2025 within Saudi Arabia, the credit rating agency highlighted. Residential transactions grew by 38 percent to exceed 200,000, while the value of these transactions rose by 35 percent to SAR164.8 billion in 2024, as reported by Knight Frank. This momentum is anticipated to build, driven by government initiatives aimed at increasing home ownership and sustained demand in major hubs such as Riyadh and Jeddah, alongside Mecca and Madinah due to heightened religious tourism. The newly introduced premium residency visa program for non-Saudis may gradually gain traction in 2025.
Shifting consumer preferences
The rising costs of home ownership are likely to shift consumer preferences, presenting an opportunity for transformation within the sector. Living in apartments instead of villas and townhouses is becoming increasingly acceptable. Buyer preferences are shifting towards off-plan properties with mortgages rather than ready-to-move-in homes. The real estate regulatory reforms of 2024 encompass several enhancements, including escrow accounting, standardization of agreements, and improved governance and transparency, all aimed at bolstering investor confidence. Furthermore, the introduction of fees on idle land could stimulate development activity. These rapid changes are creating a favorable environment for developers and investors to reshape the landscape of Saudi Arabia’s residential market, as reported by S&P Global.
