Saudi Residential Mortgage Loans Surge To 11-Month High In January 2024
In a significant financial development within Saudi Arabia's real estate sector, banks across the Kingdom disbursed residential mortgage loans totaling SR7.54 billion ($2 billion) to individuals in January 2024. This figure marks an 11-month peak in the issuance of such loans, reflecting a 21 percent increase, or an additional SR1.3 billion, compared to the previous month. The surge in loan issuance is closely tied to a series of government-led initiatives aimed at enhancing access to finance, introducing affordable housing solutions into the market, and improving operational efficiencies within the housing sector.
These residential loans primarily facilitate the purchase of houses, apartments, and land. A significant portion, 68 percent or SR5.13 billion, of the loans was dedicated to house purchases, experiencing a 19 percent increase from the previous month. Apartment purchases accounted for 26 percent of the loans, amounting to SR1.97 billion, and saw a 17 percent growth during the same period.
Several government initiatives have been instrumental in transforming the housing sector in Saudi Arabia. The Saudi Real Estate Refinance Co., established in 2017 by the Public Investment Fund, aims to increase liquidity in the real estate market and improve access to sustainable financing for homebuyers. Another initiative, Sakani, assists citizens in owning their first home by offering online applications for instant approval, creating new housing, allocating building plots, and providing financial support like subsidized mortgages.
In an effort to make housing more affordable, the government waived the value-added tax in 2020, replacing a 15 percent real estate sales tax with a 5 percent disposal tax and exempting first-time buyers of properties worth up to SR1 million. The implementation of the White Land Tax, which imposes a 2.5 percent levy on undeveloped residential land, aimed to increase the availability of construction land.
The Saudi Central Bank's decision to reduce the minimum down payment for property purchases from 30 percent to 5 percent and the establishment of the General Authority for Real Estate in 2017 as a central regulatory body are other pivotal measures taken to stimulate sector growth and ensure consumer protection.
Challenges and Market Dynamics
Despite these supportive measures, the sector faces challenges, including a 10 percent decrease in new residential bank loans compared to the same period last year, primarily due to rising interest rates and borrowing costs. Additionally, real estate prices for villas and apartments have continued to climb, leading to a decrease in transaction volumes. Deloitte's 2024 KSA market review highlighted a 15 percent decline in the total number of residential transactions in Riyadh, Jeddah, and Dammam, totaling 67,233 transactions worth SR79 billion in 2023 compared to the previous year.
Sales prices and rents in major cities like Riyadh and Jeddah have witnessed increases, with significant transaction growth in areas offering affordable housing options. Meanwhile, Jeddah has seen a surge in demand for upper-middle to high-end residential properties, particularly in North Jeddah.
In response to affordability issues and evolving market dynamics, Saudi Arabia expanded its premium residency visa program in 2024, introducing five new products, including one tied to real estate ownership. This initiative aims to attract international investments and align with Vision 2030's goals to diversify the economy and prioritize top-tier housing. A survey by Knight Frank in 2024 revealed a strong interest among high-net-worth individuals in owning real estate in Saudi Arabia, despite a notable lack of local financing options for this demand segment.
The developments in Saudi Arabia's residential mortgage loan sector and government initiatives underscore a dynamic period of growth and transformation in the housing market, despite the challenges posed by affordability and market dynamics. These efforts reflect the Kingdom's commitment to enhancing the quality of life for its citizens and attracting international investment, crucial steps towards achieving the objectives set forth in Vision 2030.
Sign in with Google