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Saudi residential boom sees apartment prices climb at fastest pace in five years

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Saudi Arabia’s residential market continues to expand at a rapid rate with apartment values in Riyadh and Jeddah showing the fastest pace of growth in five years, according to the latest market analysis by property consultant, Knight Frank.

Knight Frank highlights that Riyadh and Jeddah have seen apartment values accelerate by 17 percent and 12 percent respectively over the last 12 months alone, amid a trend of first-time buyers looking to buy smaller, more affordable units.

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Faisal Durrani, partner and head of Middle East Research at Knight Frank, said: ”The government’s drive to boost home ownership rates began in 2016, however house prices only began accelerating in 2019. And in fact, apartment prices in Riyadh have increased by 14.4 percent since 2019.”

Supply of new housing units in Saudi Arabia has also surged as the government’s Sakani and Wafi programs drove the building of affordable housing.

Knight Frank’s analysis notes that villa price growth is starting to slow and that it may be linked to emerging affordability issues, combined with other structural changes in the market.

“Counterintuitively, home ownership has actually become more affordable since the launch of the National Transformational Plan,” Durani said. “Two-bedroom apartments for instance, on average, cost 2.4 times annual incomes, compared to a multiplier of 2.7 back in 2016, well within globally accepted affordability thresholds.”

“While villas too have become more affordable, they can still cost anywhere between 7-12 times annual incomes.”

Coupled with the affordability challenges, social changes are expected to drive demand away from traditional standalone villa properties, with smaller units, where community and lifestyle are at the heart of developments, offering modern comforts, are set to reshape the residential landscape in the Kingdom,” Durrani explained.

“It’s not just affordability that’s becoming an issue when it comes to villas, it is now also more culturally acceptable for a family to buy an apartment as their first home.”
“Also, the young demographic of the country – 56 percent are below the age of 35, are expected to be less in favor of multi-generational living, creating even more demand for housing.”

“Furthermore, with job creation rates accelerating in the Kingdom’s economic heart, Riyadh, demand for single-person dwellings is likely to accelerate, hinting at the start of a structural shift in the market’s demand dynamics.”

Despite the affordability issues for larger homes and shifting demand-supply dynamics, Knight Frank’s outlook for the sector remains buoyant, not least because of the limited supply pipeline, which is expected to add 730,000 homes to Riyadh by the end of 2030, which according to Knight Frank is a shortfall of at least 420,000 homes.

Elsewhere, Jeddah’s residential market has seen apartment prices surge by 11.7 percent over the last 12 months, also the strongest rate of growth in at least five years. Villa prices on the other hand have risen by just 1.3 percent over the same period.

“The disparity in Jeddah’s residential market is in large part down to affordability issues, with villas in Jeddah costing upwards of 12-times annual incomes, well above globally accepted levels of 4 to 6 times your income,” noted Durrani.

Mirroring the Jeddah market, average apartment prices in the Dammam Metropolitan Area (DMA) have risen by 5.5 percent in the year to Q3 2021, while average villa prices have declined by 1.9 percent over the same period.

Unlike Riyadh, however, developers are responding with a growing number of townhouse projects emerging as an alternative option for first-time buyers. These are being priced at a more affordable price, which Knight Frank believes will help in bridging the affordability gulf in DMA’s residential market.

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