Saudi Arabia’s Real Estate Market Set for a Strong Rebound in 2024

Introduction

As the global economy continues to navigate the complexities of recovery, Saudi Arabia’s real estate market is poised for a significant rebound in the latter half of 2024. A recent analysis by the Kuwait Financial Center, also known as Markaz, highlights the Kingdom’s robust growth trajectory, driven by strong performance in both oil and non-oil sectors. This article delves into the factors contributing to this anticipated resurgence, the implications for the real estate sector, and the broader economic context.

Economic Fundamentals Driving Growth

The Markaz report underscores the importance of strong macroeconomic fundamentals and supportive government policies in driving the growth of the Gulf Cooperation Council (GCC) real estate sector. Saudi Arabia, along with Kuwait and the UAE, is leading the charge, with a projected Real Estate Macro Index Score of 3.6 for the second half of 2024. This marks an improvement from the first half of the year, where Saudi Arabia scored 3.55, indicating a positive shift in market dynamics.

The Kingdom’s Vision 2030 initiative aims to transform Saudi Arabia into a global business, tourism, and investment hub. This ambitious plan is crucial for the development of the real estate sector, which is expected to play a pivotal role in achieving these goals.

Residential Sector Boom

In the first quarter of 2024, Saudi cities such as Riyadh, Jeddah, and Dammam experienced remarkable year-over-year increases in residential sales transactions, with figures soaring by 77%, 93%, and 28%, respectively. This surge reflects a growing demand for housing, driven by population growth and urbanization. The office sector is also witnessing a strengthening trend, with rising rents in high-end and mid-range properties across these cities.

The Ministry of Investment’s report further emphasizes the Kingdom’s attractiveness to international firms, with 57 companies establishing their regional headquarters in Saudi Arabia in the second quarter of 2024—an impressive 84% increase from the previous year. This influx of businesses is expected to bolster demand for both residential and commercial properties.

Government Initiatives and Incentives

The Saudi government has introduced a range of initiatives to attract foreign investment, including tax incentives for multinational companies relocating to the Kingdom. These incentives include a 30-year exemption from corporate income tax and withholding tax related to headquarters activities. Such measures are anticipated to drive demand for office spaces and contribute to rising rental prices, particularly in urban centers.

Markaz notes that the hospitality sector has also experienced significant growth, with Riyadh leading a 26.8% increase in average daily rates. This growth is fueled by increased business travel, religious tourism from the Hajj pilgrimage and Umrah, and a vibrant calendar of international and cultural events.

Positive Outlook for the Real Estate Market

The outlook for Saudi Arabia’s real estate market remains positive, with continued growth expected in the latter half of 2024. The report highlights robust non-oil sector activities and substantial government infrastructure spending as key drivers of this growth. Markaz predicts that Saudi Arabia’s real GDP will grow by 2.6% in 2024, recovering from previous contractions, with an optimistic forecast of 8.1% growth in 2025.

The General Authority for Statistics reports a 0.6% rise in the real estate price index for the first quarter of 2024, led by a 1.2% increase in residential land prices. This upward trend indicates a recovering market, with strong demand for housing and commercial properties.

Regional Comparisons: UAE and Kuwait

While Saudi Arabia is on a growth trajectory, the UAE’s real estate sector is also expected to thrive through 2024. Markaz projects continued growth driven by strong demand in residential, office, and hospitality segments. The UAE’s non-oil economy, bolstered by government support and favorable policies, remains resilient despite geopolitical uncertainties.

In the first half of the year, residential property prices in Dubai and Abu Dhabi surged by 18.3% and 8.6%, respectively, reinforcing the UAE’s status as a premier luxury housing market. The reduction of the minimum down payment for golden visas to 1 million dirhams ($272,264) is expected to attract more international investors, further boosting the market.

Kuwait’s real estate sector, while facing economic challenges, is also demonstrating resilience. Despite a projected GDP contraction of 1.4%, the non-oil sectors, particularly real estate, are experiencing growth. Rising rents and land prices, especially in the housing rental market, indicate a revival in Kuwait’s real estate sector.

Conclusion

In summary, Saudi Arabia’s real estate market is on the cusp of a significant rebound, driven by strong economic fundamentals, government initiatives, and increasing investor interest. As the Kingdom continues to implement its Vision 2030 goals, the real estate sector is set to play a crucial role in transforming Saudi Arabia into a global business and tourism hub. With positive indicators across the GCC region, including the UAE and Kuwait, the outlook for the real estate market remains bright, promising exciting opportunities for investors and stakeholders alike.