Soaring Prices and High Borrowing Costs Impact Homebuyers
Saudi Arabia's residential real estate market is under pressure due to rising home prices and increased borrowing costs, which have dampened the enthusiasm for homeownership. According to real estate consultancy Knight Frank, demand from first-time homebuyers has dropped to 29% from 40% in 2023, based on a survey of over 1,000 households.
Affordability Concerns and Buyer Expectations
Many prospective buyers believe property prices are too high and require more time to save or need better financing options. Knight Frank’s 2025 Saudi report reveals that apartment prices in Riyadh have surged by almost 11% in 2024, reaching approximately $1,500 per square meter.
Saudi Arabia’s Housing Initiatives and Market Demand
To accommodate a growing population and increase homeownership rates to 70%, Saudi Arabia has been heavily investing in housing developments. The country needs to construct 115,000 homes annually for the next six years to meet demand. However, there is a mismatch between buyer expectations and current market offerings, according to Faisal Durrani, head of Middle East research at Knight Frank.
Luxury vs. Affordable Housing: Supply and Demand Imbalance
Affordability remains a major challenge, especially for low- and middle-income earners, as their budgets often fall short of the asking prices. While high-income buyers can afford new housing, they constitute a small portion of the population. Leading developers such as Roshn Group and Dar Global Plc have been increasing supply, focusing on luxury housing. The National Housing Company (NHC) is also building properties at more affordable price points.
Potential Oversupply of Luxury Homes
According to Durrani, Saudi Arabia may face an oversupply of luxury housing in the next five years unless new demand sources, such as international buyers, are identified. The anticipated changes in foreign ownership laws are expected to attract overseas investors. Currently, foreigners can obtain long-term residency in Saudi Arabia by investing SAR 4 million ($1.1 million) in residential real estate.
Foreign Investment in Saudi Real Estate
Recent relaxations in foreign property investment rules in Mecca and Medina indicate that further changes could be coming. While these holy cities have drawn interest, Riyadh remains the most sought-after location in Saudi Arabia, though it has also experienced the fastest price increases.
Shift Towards Renting Amid Housing Shortages
With rising home prices, Riyadh is witnessing a growing preference for renting instead of owning. More foreign workers and young Saudi nationals migrating to the capital prioritize rentals due to affordability issues. However, the rental market is facing supply shortages, leading to increased demand for build-to-rent developments.
The Future of Saudi Arabia’s Housing Market
Experts see significant potential in the build-to-rent sector, emphasizing the need for more affordable housing options. "This challenge is not about a lack of demand," said Durrani. "It’s about ensuring that the market builds homes that match the demand that exists."
