Homeownership is one of the visions at the heart of the Kingdom. As laid out in vision 2030, 70% of Saudi nationals are expected to be homeowners. Well, this is a jaw-dropping opportunity for real estate investors who are already salivating to meet this demand. Some through large villas and others through small houses.
The Residential Market Report already indicated an impressive move toward this end:
- 63% of mortgages in 2022 were issued for villas
- 19% of mortgages in 2022 were issued to apartments and;
- 18% for land purchases.
While this report gives an impression of what the investment environment looks like, there is more than meets the eye regarding the demand trajectory.
Let’s take a look at the market two years ago!
- The 2020 National Housing Survey revealed the following statistics:
- The Kingdom’s population had increased by 520% in 50 years.
- 84% lived in urban areas especially the major cities in the Kingdom.
- The population is mainly comprised of the younger generation under the age of 30.
- Interestingly, 51% were living in apartments out of which 56% intended to purchase a property by 2025.
- However, 65% had a budget of less than SAR 1 million
So, what did these statistics imply regarding the likely shifts in demand for houses?
From an intellectual point of view, these data implied that there will be a shift in the demand for houses and a shift from large villas.
The narrative is already unfolding two years later as reflected in the Arabian Gulf Business Insight, 2022:
- Quarter 2, 2022 saw a 12% increase in the purchase of affordable apartments
- In August 2022, purchases for larger villas decline by 45%
- The mortgage issued by banks in the Kingdom reduced by 15.9 year-on-year
- 9% increase in employment of Saudi nationals and 9.5 foreigners implied an increase in demand for affordable housing.
What does it Means to an Investor?
Before we slaughter the goose that laid golden eggs, in the large villas of six to seven bedrooms, we can take a deep breath!
With the growing population of the younger generation and the increase in employment in the Kingdom, it might be time to rethink these large villas. The families to target in the investment for real estate are 35 years and below. It implies that they are small and will be looking for smaller houses with high-quality finishing.
To tickle the taste of the younger generation, affordable housing is a promising opportunity as it will meet the needs of the young Saudi population. The government has also demonstrated commitment to the realization of this dream as part of the vision 2030 fulfilment.