Saudi Arabia’s Housing Market Faces Affordability Crisis Amid Soaring Prices and High Borrowing Costs
Saudi Arabia’s housing market is facing a growing affordability crisis as property prices continue to rise and borrowing costs remain high. These challenges threaten the Kingdom’s ambitious Vision 2030 goal of increasing homeownership rates to 70% among its citizens. As housing demand outpaces supply, particularly in urban centers, many Saudis are finding it increasingly difficult to afford homes.
Escalating Property Prices
In recent years, property prices in major Saudi cities have surged significantly. Riyadh, the capital, has seen an 81% increase in house prices and a 56% rise in apartment prices since 2020. Similar trends are being observed in other major cities such as Jeddah and Dammam, where high demand and limited supply are driving property values upward.
One of the key factors behind this price escalation is the increasing number of young Saudis relocating to major cities for job opportunities. As the Kingdom expands its economy beyond oil through investments in industries such as technology, tourism, and entertainment, urban centers are witnessing a sharp rise in population. This surge in demand, combined with limited housing availability, has resulted in skyrocketing real estate prices.
Additionally, land prices have risen substantially, making it more expensive for developers to construct new homes. Many private developers focus on high-end properties that offer higher profit margins, leaving a shortage of affordable housing for middle-income Saudis. The gap between housing supply and demand continues to widen, making homeownership more difficult for many aspiring buyers.
Rising Borrowing Costs
In addition to soaring property prices, rising borrowing costs have made it harder for Saudis to finance home purchases. The Saudi Central Bank (SAMA) has adjusted interest rates in response to global economic conditions, leading to higher mortgage rates. Many potential buyers are now struggling with the increased cost of home financing, as higher interest rates mean larger monthly payments and longer repayment periods.
Despite these challenges, real estate lending has continued to grow. In the third quarter of 2024, total real estate loans from Saudi banks reached a record high of 846.48 billion riyals ($225.73 billion), marking a 13.29% annual increase. Both retail and corporate lending have surged, with corporate real estate loans seeing a significant 22% rise. However, despite the increase in mortgage lending, many Saudis remain priced out of the market due to unaffordable property values and stricter loan conditions.
Government Initiatives and Challenges
To address the affordability crisis, the Saudi government has introduced several initiatives under its Vision 2030 plan. One of the major efforts includes the construction of over 30,000 housing units by the National Housing Company. Additionally, state-subsidized bank loans have been offered to help citizens finance home purchases.
Regulatory measures have also been implemented to support homebuyers. In 2018, SAMA raised the maximum loan-to-value (LTV) ratio for first-time homebuyers from 85% to 90%, allowing buyers to secure larger loans with lower down payments. While these measures have helped some Saudis enter the housing market, they have not been enough to offset the impact of soaring property prices and high borrowing costs.
A significant issue remains the mismatch between home prices and affordability. Studies show that the majority of Saudi homebuyers are willing to spend up to 1.5 million riyals on a house. However, current market prices often exceed this budget, forcing many buyers to either delay their homeownership plans or opt for smaller, less desirable properties.
Inflation and Economic Impact
The rising cost of housing has also contributed to inflationary pressures in Saudi Arabia. In November 2024, the country’s annual inflation rate increased to 2%, up from 1.9% in October. A key driver of this inflation has been the sharp rise in housing rents, which jumped by 10.8% over the past year. Apartment rentals, in particular, have seen a 12.5% increase, making it even more challenging for residents to find affordable living spaces.
Although Saudi Arabia’s overall inflation rate remains moderate compared to global standards, the rise in housing costs is significantly impacting household budgets. Many families are being forced to allocate a larger portion of their income toward rent and mortgages, leaving less money for other essential expenses. The increased cost of living may also affect consumer spending, potentially slowing economic growth in the long run.
Future Outlook
The Saudi government remains committed to addressing the housing affordability crisis as part of its broader Vision 2030 objectives. Several large-scale projects are underway to expand the housing supply, particularly in major cities, to meet the growing demand. The Kingdom is also attracting foreign investment in the real estate sector to boost development and modernize urban living.
One of the key strategies involves large-scale infrastructure projects such as the futuristic city of Neom and other mega-developments. These initiatives aim to create modern, sustainable living spaces while accommodating the Kingdom’s rapidly growing population. However, these projects face their own challenges, including high costs, budget constraints, and the need for long-term funding.
As Saudi Arabia continues to modernize its housing sector, balancing urban development with affordability remains a complex challenge. While government intervention and new housing initiatives may help ease the crisis, the effectiveness of these efforts will depend on how well they address the financial limitations of average Saudi buyers. Ensuring that new housing developments cater to a broad range of income levels will be crucial in achieving the Kingdom’s long-term homeownership goals.
Conclusion
Saudi Arabia’s housing market is at a critical crossroads. The combination of soaring property prices, rising borrowing costs, and inflationary pressures has made homeownership increasingly difficult for many Saudis. Although government initiatives are in place to address these challenges, the success of these efforts will depend on effective implementation and the ability to provide affordable housing solutions.
As the Kingdom pushes forward with its Vision 2030 objectives, ensuring a stable and accessible housing market will be essential for economic growth and social stability. The coming years will be crucial in determining whether Saudi Arabia can bridge the affordability gap and make homeownership a reality for more of its citizens.
Do follow gulf magazine on Instagram
for more information click here
