In the first quarter of 2024, the portfolios of real estate loans provided by Saudi banks exhibited significant growth, reaching SR800.5 billion, which is a 13 percent increase year-on-year according to data from the Saudi Central Bank (SAMA). Retail loans dominated this sector, accounting for 78 percent, while corporate loans comprised the remaining 22 percent.
Individual loan growth was reported at 10 percent annually, slower than corporate loan growth, which saw a 26 percent increase. High interest rates may have influenced this disparity, potentially causing individuals to be more cautious due to the higher costs of borrowing.
The Kingdom’s mega-projects, a cornerstone of Vision 2030, are believed to be a driving force behind the surge in corporate real estate loans, as these initiatives demand substantial investment and, consequently, corporate financing.
Interestingly, the General Authority of Statistics noted a 1.2 percent rise in residential real estate prices, while commercial property prices fell by 0.5 percent during the same period. This variation in pricing trends may have made commercial real estate more accessible for corporate entities, thus increasing the demand for related loans. On the other hand, the growth in retail real estate lending appeared to be more tempered.
Regarding new residential mortgages, SAMA’s figures show a 2 percent increase to SR27.44 billion in the first four months of 2024 compared to the previous year. Despite a slight 1 percent decline in house lending, which still constituted the majority of new loans, apartment lending grew by 9 percent, and land credit rose by 5 percent.
PwC’s research highlights Saudi Arabia’s ambitious demographic goals, including doubling Riyadh’s population and attracting 9 million people to ‘The Line’ by 2045. Recent visa reforms, including the Premium Residency Program, are geared toward drawing in skilled expatriates, investors, and entrepreneurs.
A Knight Frank survey revealed that 77 percent of Saudi-based expatriates are keen on property ownership, with investment potential being a key motivator. The trend toward apartment living among expatriates may be due to affordability and cultural preferences.
Post-global financial crisis, Baker McKenzie Research Hub observes a shift toward more secure lending practices, with full-recourse financing and over-collateralized security. Additionally, SAMA has set a 90 percent cap on loan-to-value ratios for residential mortgages, to strike a balance between encouraging homeownership and ensuring market stability.
As the Registered Real Estate Mortgage Law is poised for full implementation, Saudi Arabia’s mortgage finance market and consumer lending practices are expected to tighten further, reflecting a cautious approach toward a robust housing sector.