Saudi Arabia’s Real Estate Sector: A Booming Market Amidst Rising…

Saudi Arabia’s real estate loans reached SR883.3 billion by the end of 2024, driven by strong demand from corporate and retail borrowers. Corporate loans surged 26.23%, while individuals accounted for a substantial portion. Increased institutional capital is supporting major projects, indicating a sophisticated market. However, rising prices in key urban areas are challenging affordability, emphasizing the need for innovative financing solutions amidst economic growth and development strategies aligned with Vision 2030.

Saudi Arabia’s real estate loans have experienced remarkable growth, soaring by 15.12 percent year-on-year, reaching a historic SR883.3 billion ($235.54 billion) by the close of 2024. This surge is attributed to strong demand from both retail and corporate sectors, as reported by the nation’s central bank, SAMA. A substantial 26.23 percent increase in corporate loans, amounting to SR202.04 billion, underscores this trend, with individuals accounting for a dominant 77.13 percent share, climbing 12.19 percent to SR681.24 billion.

Currently, real estate financing represents approximately 30 percent of the total Saudi banking loans, which totaled SR2.96 trillion at the end of the year. This significant development reflects growing confidence within Saudi markets, driven by institutional capital that supports the development of high-end commercial areas and integrated residential projects. These initiatives are critical to the Kingdom’s economic diversification strategy.

Elias Abou Samra, CEO of Rafal Real Estate, articulated that the market is gaining sophistication as both local and international investors increasingly adopt a medium to long-term perspective. “Such investors are more bankable than the typical retail investor with better access to corporate lending,” he noted, indicating a shift where corporate clients are taking advantage of favorable financing conditions to invest in expansive projects.

The investments made by corporations often come with intricate financing schemes and strategic planning aligned with Saudi Arabia’s Vision 2030 for urban development. Abou Samra highlighted the global interest surrounding mega projects like Sports Boulevard and King Salman Park, which have progressed into vital development stages, drawing considerable investment.

Moreover, in the post-COVID recovery period from 2021 to 2023, many developers emerged with smaller-scale, low-rise projects mainly funded through off-plan sales rather than corporate financing. “The profile of today’s projects are mixed-use with a reasonable concentration of commercial and income generating developments demanding higher reliance on debt as a major source of funding,” said Abou Samra.

The Ministry of Housing has established a comprehensive system guiding real estate companies through every development stage, from planning to financing. This structure ensures compliance with national standards and streamlines processes to reduce delays, enhancing overall efficiency. Abou Samra stated that RAFAL has aligned its developmental strategies with this government initiative, leveraging the National Housing Company’s solutions for improved financing and selling efficiency.

Over 3,600 apartments were recently introduced in RAFAL’s Tilal Khuzam project, achieving significant sales success within a short window, attributed to the integrated approach of the National Housing Company. Abou Samra remarked, “Under Sakani, off-plan sales buyers are matched with the most competitive lenders through a swift digital process that does not exceed two weeks from contract signature.”

Conversely, Knight Frank’s Saudi Report 2025 revealed that the real estate market faces mounting price pressures due to rising demand, leading to unprecedented property price levels, particularly affecting affordability for average buyers. This surge is largely fueled by urbanization, a growing middle class, and strategic investments from Vision 2030, requiring innovative financing to address these challenges effectively.

The report identified significant price hikes primarily in urban centers like Riyadh and Jeddah, where prime districts have seen double-digit growth. Abou Samra remarked on the distinct market trends: “We are witnessing a decoupling between Riyadh and most other cities,” indicating that while Riyadh’s market is overheating, other cities maintain healthy demand.

Riyadh is transitioning into a dynamic international hub, attracting expatriates and foreign investors, especially with anticipated easing of foreign ownership laws in 2025. This evolution is altering the demand pattern, favoring modern apartments over traditional homes. Investors now prioritize buy-to-let units, recognizing attractive rental yields averaging between 8 to 10 percent.

Regarding interest rates, Saudi Arabia’s rates have closely followed the US Federal Reserve due to a fixed exchange rate. Following a mid-2023 peak of 6 percent, the benchmark rate has been reduced to 5 percent. This decrease could usher in more favorable borrowing conditions, stimulating real estate financing demand. Abou Samra observed that despite expectations of sustained higher interest rates for the next two years, the real estate sector has exhibited resilience against rising costs due to swift policy adaptations within government bodies.

Alternative funding solutions have been introduced to minimize the reliance on conventional bank debt, including installment payments for lands and regulated off-plan sales. Abou Samra remarked, “This new ecosystem has served in keeping prices reasonably within the reach of Saudi buyers despite global inflation and an overheated market locally,” stressing the importance of innovation in maintaining market stability.

In conclusion, Saudi Arabia’s real estate sector is undergoing significant transformation, marked by a notable increase in loans and evolving investment dynamics influenced by both corporate and individual demand. With supportive government frameworks and strategic projects aligned with Vision 2030, the market is expected to experience sustainable growth. However, challenges regarding affordability necessitate innovative financing solutions to ensure access for all economic classes. The emergence of new funding avenues demonstrates the proactive approach by industry stakeholders to navigate the complexities of the current economic landscape.

Original Source: www.arabnews.com