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There has been a significant decrease in residential property activity across Saudi Arabia, according to property consultancy Knight Frank.

The firm says the contraction appears to result from shifting affordability circumstances and evolving market dynamics.

“The number of residential transactions in the kingdom continues to fall, in line with our previous forecasts, decreasing by roughly 57 per cent in Riyadh and 67 per cent in Jeddah on an annualised basis as of the end of the first quarter,” said Faisal Durrani, partner and head of Middle East research at Knight Frank.

“The substantial increase in villa and apartment prices in 2022, by 40 per cent and 50 per cent, respectively, in Riyadh has inevitably affected buyer demand, leading to a period of savings accumulation among households,” he added.

Knight Frank’s 2023 Saudi Report showed a considerable drop in the desire to buy residential property this year, from 84 per cent in 2022 to 40 per cent at present.

Durrani said: “Aside from rising prices, many of those who intended to transition from renting to owning have likely already done so. The home ownership rate now stands at around 67 per cent, only marginally below the government’s 70 per cent target for 2030.

“An emerging trend is the domestic migration of young Saudis – 56 per cent of the population is under 35 – who are increasingly mobile within the kingdom, moving between cities for better career opportunities. Most of this age group does not prioritise home ownership. In fact, around 68 per cent of Saudis do not consider themselves permanent residents of the cities in which they live and work, suggesting they were born elsewhere in the country.

“This group displays a greater inclination to rent than to own, leading some property owners to convert sales properties to rental accommodations, thereby decreasing the available stock for purchase and contributing to the high price of homes.”

Harmen De Jong, partner at KSA – real estate strategy and consulting at Knight Frank, said: “The significant decrease in residential transactions is a feature of a cyclical market, primarily driven by the substantial rise in capital values over the past 12 to 18 months.

“Other factors include an increase in mortgage rates, impacting the cost of ownership, and a notable reduction in subsidies in the form of interest-free loans, especially affecting lower-income demographics, have also dampened enthusiasm for home purchases.”