Saudi Arabia’s residential real estate market is experiencing robust growth, with the number of new residential units and mortgages climbing steadily, according to a new report by S&P Global Ratings. The expansion aligns with Saudi Arabia’s Vision 2030 objective to increase homeownership across the country, reflecting both strong growth fundamentals and the needs of a youthful population of over 35 million.

Economic Growth and Population Surge Fuel Demand

In its report, "Saudi Residential Real Estate: The Market Is Booming," S&P Global Ratings emphasises that the kingdom’s economic indicators remain resilient, driven by a high rate of population growth. This growth, expected to average 3.3% annually between 2024 and 2027, is bolstered by internal migration and an influx of expatriates, particularly in the cities of Riyadh and Jeddah, where demand for housing is soaring.

S&P Global Ratings credit analyst Sapna Jagtiani commented on the positive trends, stating: “We believe that Saudi Arabia’s economic indicators and population growth will remain strong, and that new household formation and declining interest rates will support the demand for residential mortgages.”

High Demand in Riyadh and Jeddah

In Riyadh and Jeddah, real estate demand remains high, supported by increasing population inflows and solid economic growth. Property consultancy JLL noted a year-on-year price rise of 10% in Riyadh and 5% in Jeddah for residential units during the first half of 2024, according to their KSA Market Dynamics Report H1 2024. Rental yields have also increased, with year-on-year growth of 9% in Riyadh and 4% in Jeddah.

The overall real estate market is active, with the total number of real estate transactions surging by 38% to over 106,700 in the first half of 2024, as reported by Knight Frank’s Saudi Arabia Residential Market Review - Summer 2024. The value of these transactions rose by 50%, reaching SAR127.3 billion.

Regulatory Reforms and Challenges for Developers

Visa policy reforms and regulatory changes are anticipated to attract direct foreign investment to the real estate sector, according to S&P. However, private developers face significant obstacles, including rising construction costs and competition for funding with other Vision 2030 projects, which may affect their ability to meet the kingdom’s housing demand.

Positive Outlook Amid Global Uncertainties

The report by S&P also notes Saudi Arabia’s economic resilience, highlighting a recent shift in its sovereign rating outlook from stable to positive. “This reflects our view of the kingdom’s strong outlook for non-oil growth and its resilience to fluctuating oil prices,” the ratings agency stated.

While Saudi Arabia and the broader GCC region have so far seen limited effects from ongoing Middle Eastern conflicts, S&P cautions that an escalation in tensions could impact debt yields, tourism, foreign investment, and potentially increase defence spending. Such pressures could impede some of Saudi Arabia’s Vision 2030 targets, the report concludes.