Saudi residential mortgage loans jump to 11-month high in January

Banks in Saudi Arabia granted residential mortgage loans worth SR7.54 billion ($2 billion) to individuals in January 2024, marking an 11-month high according to the data issued by the Kingdom’s central bank.

The January figures represent a 21 percent increase or SR1.3 billion more than the loans offered the previous month.

The uptick could be attributed to several government initiatives such as improving access to finance, introducing new and affordable housing options to the market, and implementing operational efficiencies in the housing sector.

The Saudi government has taken several measures to strengthen the sector’s infrastructure and enhance the governance of the housing program.

These residential loans are typically utilized for purchasing houses, apartments, and land. The bulk — constituting 68 percent or SR5.13 billion — was allocated for house purchases. This segment saw a 19 percent increase from the previous month.

Apartments accounted for 26 percent of the loans, totaling SR1.97 billion, with a growth rate of 17 percent during the same period.

While comprising the smallest share at 6 percent, new loans for land purchases recorded the highest growth rate at 73 percent, reaching SR440 million in January.

Some of the initiatives driving the Saudi housing sector transformation include the Saudi Real Estate Refinance Co., established by the Public Investment Fund in 2017. It seeks to boost liquidity in the real estate market and enhance homebuyers’ access to sustainable financing solutions.

Sakani is another real estate initiative aiding citizens in owning their first home. It offers online applications for instant approval, creates new housing, allocates building plots, and provides financial support like subsidized mortgages. The program also matches applicants with sustainable housing solutions based on their financial status.

The waiver of value-added tax introduced in 2020 is another initiative, through which a 15 percent real estate sales tax was replaced by a 5 percent disposal tax. This change also introduced an exemption for first-time buyers of properties worth up to SR1 million.

Additionally, the White Land Tax, imposing a 2.5 percent levy on undeveloped residential land, was introduced to enhance the supply of land for construction.

The Saudi Central Bank also played a pivotal role by reducing the minimum down payment required for property purchases from 30 percent to 5 percent, thereby stimulating the growth of the housing sector.

The establishment of the General Authority for Real Estate in 2017 as a central regulatory entity also aimed to regulate the real estate sector, encouraging investment, and safeguarding consumer interests.

Nevertheless, affordability concerns stemming from rising interest rates and borrowing costs have led to a 10 percent decrease in new residential bank loans compared to the same period last year.

Additionally, real estate prices for villas and apartments continued their upward trend in 2023, resulting in a decline in transaction volumes. Deloitte’s 2024 KSA market review reported that the total number of residential transactions in Riyadh, Jeddah, and Dammam reached 67,233 in 2023, amounting to SR79 billion, reflecting a 15 percent decrease from 2022.

Sales prices and rents in Riyadh and Jeddah have seen increases, with Riyadh’s sales rates rising by 5 percent for villas and 8 percent for apartments based on data issued by the Ministry of Justice. Deloitte noted that around 80 percent of transacted apartments in Riyadh were priced between SR250,000 to SR1 million in 2023, targeting the low to mid-income segments.

North Riyadh has emerged as a major residential hub, while South Riyadh has witnessed the highest growth in transaction shares, attributed to the availability of affordable housing.

In Jeddah, there is a rising demand for upper-middle to high-end residential properties, particularly in North Jeddah, which has experienced significant price growth compared to other areas.

On the other hand, Saudi Arabia introduced a premium residency visa in 2019, expanding the program in 2024 with the addition of five new products. One program linked to real estate ownership requires applicants to own property valued at a minimum of SR4 million without existing or future mortgages.

These initiatives were introduced to attract international investments amid these affordability challenges and evolving market dynamics, aligning with the objectives of Vision 2030 to diversify the economy and prioritize top-tier housing.

In a 2024 survey conducted by global property consultancy Knight Frank, it was revealed that 82 percent of high-net-worth individuals showed keen interest in owning real estate in Saudi Arabia.

Nevertheless, the survey highlighted a notable lack of local financing options for this specific demand segment, with many participants perceiving this as a potential obstacle. This situation could potentially open up opportunities for the wider Saudi real estate market, especially for the banking sector.