Population growth, regulatory reforms and tourism reshaping Saudi real estate sector

15/03/2025 06:02 AST

Saudi Arabia's real estate sector is poised for robust expansion thanks to an increasing population, growth in the tourism industry, and friendly government policies and regulatory reforms, experts told Arab News.

The Kingdom's Real Estate General Authority expects the property market to reach $101.62 billion by 2029, with an anticipated compound annual growth rate of 8 percent from 2024.

Strengthening this sector is crucial for Saudi Arabia as it seeks to position itself as a global hub for tourism and business, by reducing its decades-old reliance on crude revenues.

Speaking to Arab News, Matthew Green, head of research at CBRE in the Middle East and North Africa region, said that the expansion of the Kingdom's real estate market is also influenced by various other factors including rapid urbanization, infrastructure development, and the rise in foreign direct investments.

"Saudi Arabia's real estate market is supported primarily by the government's aggressive investment program, particularly toward the giga-projects, which is driving non-oil production, fueling employment and population growth, and attracting FDI," said Green.

He added: "The country's supportive demographics, which are characterized by the presence of a significant young and well-educated population, increasingly liberalized, and a rising middle class with greater disposable income levels than previous generations is also driving the growth of the real estate market in the Kingdom."

Saud Al-Sulaimani, country head of JLL in Saudi Arabia, echoed those views and said that government policies, including the Sakani program and Real Estate Investment Trusts - as well as new mortgage laws and foreign ownership regulations - are propelling the growth of the property sector.

"Sakani program supports home ownership by providing financial aid and land to Saudi citizens, while REITs encourage institutional investment in the sector," he said.

"Relaxed ownership laws are making the Kingdom's real estate market more attractive to international investors. All these factors are driving the growth of the real estate sector in the Kingdom."

Founded in 2017 by the Saudi Ministry of Housing and the Real Estate Development Fund, the program aims to increase the proportion of families that own a home in the Kingdom to 70 percent by 2030, in line with the economic diversification strategy Vision 2030.

In January, Saudi Arabia's Capital Market Authority approved foreigners to invest in Saudi-listed companies owning real estate in Makkah and Madinah.

Effective from Jan. 27, the amendment aims to boost the capital market's competitiveness and align with the Vision 2030 economic diversification objectives, the authority said in a statement.

"The landmark change to allow international investors to access the property markets in the Holy Cities through listed companies, announced this week, will help to begin addressing the pent-up demand from international investors hungry to access real estate markets in the Kingdom's Holy Cities," Faisal Durrani, head of research at Knight Frank, told Arab News.

He added: "This change in investor rules, combined with last January's introduction of Premium Residency Visas, one of which is connected to property ownership, is a clear indication of the direction of travel and the strongest hint yet of authorities' plans around boosting inward international real estate investment."

Susan Amawi, general manager of Knight Frank in Saudi Arabia, said that construction activities in Saudi Arabia are expected to rise in the coming years with the Kingdom targeting to deliver 1.04 million homes by the end of the decade.

"Government programs such as Wafi and Sakani have pushed the national homeownership rate to around 64 percent; however surging home values are testing the limits of affordability. With plans underway to deliver 1.04 million homes across the country by 2030, we expect to see a significant ramping up in construction activity and jobs as the 2030 deadline nears," said Amawi.

Regional headquarters program driving growth
Al-Sulaimani told Arab News that the regional headquarters program is one of the crucial factors acting as a catalyst for growth of the commercial real estate sector in the Kingdom.

"The program has led to increased demand for high-quality office spaces and mixed-use developments, spurring investments across key industries, including offices, hospitality, and data centers," he said.

The JLL official added: "This influx of international businesses is reshaping real estate dynamics, with an increased focus on smart technologies, sustainability, and specialized assets, creating a thriving environment for global talent."

Knight Frank's Amawi said that the strong economic growth in the Kingdom, combined with the regional headquarters program has driven up demand levels for premium office space, while vacancy rates have approached record lows of around 2 percent in Riyadh.

"Office rents for Grade A space in Riyadh too have responded to the sharp upturn in occupier requirements, rising by 51 percent in the last three years alone," said Amawi.

Real estate and tourism
Durrani said that Saudi Arabia's ambition to attract more than 150 million visitors by the end of the decade is creating several opportunities in the hospitality real estate sector.

"For domestic tourism to flourish in Saudi Arabia, care and attention must be paid to the development of attractions in secondary and tertiary cities if they are to compete and thrive alongside all the new giga-project hospitality offerings," he said.

Durrani added that cost-effective accommodation facilities are needed to meet the demand of travelers and address the issue of expensive stays.

"With 28 percent of Gen Z Saudis highlighting high costs as a barrier to domestic travel . so there remains an opportunity to develop more cost-effective accommodation options," added Durrani.

Green of CBRE echoed similar views and said that diverse accommodation options are crucial to strengthening the real estate sector in the Kingdom.

He flagged the need for a mix of hotel rooms, long stay suites, private unit rentals - such as Airbnb - as well as lower cost hostels and other budget-friendly room options.

Al-Sulaimani said that the launch of high-profile and futuristic mega and giga-projects attracted global attention and investments, and symbolizes a progressive shift in Saudi urban development.

"The focus on tourism and entertainment, alongside massive investments in infrastructure, from transportation to utilities and logistics, are creating a more conducive environment for real estate development," said the JLL official.

Real estate and technology
Al-Sulaimani added that the adoption of new technologies and digital solutions is critical to streamlining operations and boosting the efficiency of the Saudi property landscape.

He said advanced technologies to create smart, sustainable, and highly efficient urban environments are fueling innovations and unlocking new growth opportunities for property tech in the Kingdom.

"Companies can leverage AI and data analytics to enhance transparency, improve decision-making, and predict market trends. The development of smart cities focuses on integrating IoT and sustainable technologies, offering residents an improved quality of life," said Al-Sulaimani.

Green shared that view, and said improving customer experience and service through technology adoption should be a key target for all companies operating in the real estate sector.

"In the context of the real estate market, the use of virtual and augmented reality for property tours and AI-powered chatbots for instant support and more personalized feedback are becoming more common globally but continue to lag in parts of the region," said Green.

He added: "In addition, generating efficiencies and streamlining operations through use of property management software and better integration of smart building technologies can also enhance property value and tenant comfort."

Uniqueness of Saudi Arabia's real estate sector

Speaking with Arab News, experts unanimously highlighted the uniqueness of the housing sector in Saudi Arabia.

"The Kingdom's real estate market is one of the fastest growing globally and certainly of the most exciting. The opportunity for investors continues to grow as the government unveils ever more ambitious projects, designed to spur economic growth in the non-oil sector and to also showcase Saudi Arabia's arrival on the global investment stage," said Amawi.

Green said that the ongoing construction of giga-projects gives the Kingdom's real estate sector an upper hand compared to other countries in the region.

The CBRE official added that Saudi Arabia's rich cultural heritage is also a further standout for tourism-related developments, creating a unique opportunity to establish a tangible cultural tourism offering in the region.

"The size and scale of the Saudi's giga-projects remain a notable differential against other regional markets, with the Kingdom still very much in its nation-building stage against more mature real estate markets in the UAE," said Green.

Arab News