Saudi Arabia's residential real estate market is witnessing solid growth with the number of new residential units and mortgages continuing to rise, in keeping with the country's homeownership target, according to S&P Global Ratings.

The kingdom's thriving residential real estate market reflects strong growth fundamentals and a largely youthful population of over 35 million people, stated S&P Global Ratings in its latest report titled 'Saudi Residential Real Estate: The Market Is Booming.'

In S&P’s view, Saudi Arabia's economic indicators and population growth will remain strong.

"We believe that Saudi Arabia's economic indicators and population growth will remain strong, and that new household formation and declining interest rates will support the demand for residential mortgages " said S&P Global Ratings credit analyst Sapna Jagtiani.

"We expect that demand for residential real estate will remain high, particularly in Riyadh and Jeddah, thanks to robust population growth of 3.3% on average over 2024-2027, driven by domestic migration and partly by expat inflows," she stated.

The top ratings group pointed out that the visa policy reforms and regulatory changes could boost direct foreign investment to the real estate sector.

However, private real estate developers face significant challenges, including mounting construction costs and competition for financing from other Vision 2030 projects, it stated.

According to S&P, residential real estate prices and rents continue to soar in Saudi Arabia as well as residential mortgages growth, being driven by new household formation and declining interest rates.

The cities of Riyadh and Jeddah saw year-on-year sales prices jump by 10% and 5%, respectively, in the first half of 2024, according to property consultancy company JLL's KSA Market Dynamics Report H1 2024.

Rental yields also remain high, with year-on-year growth of 9% in Riyadh and 4% in Jeddah. The total number of real estate transactions across all asset classes surged by 38% to just over 106,700 in the first half of 2024, while their total value leapt by 50% to SAR127.3 billion, according to global real estate company Knight Frank's Saudi Arabia Residential Market Review - Summer 2024.

In S&P Global Ratings' view, Saudi Arabia's economic indicators and population growth will remain strong.

"We recently revised the outlook on our sovereign ratings on Saudi Arabia to positive from stable to reflect our view of the country's strong outlook for non-oil growth and its economic resilience to volatile oil prices," stated the top ratings agency.

"Saudi Arabia and the rest of the GCC region have not seen much impact from the conflict in the Middle East, with debt yields remaining broadly stable and tourism inflows robust," said the report.

"However, if tensions were to escalate, we could see a higher risk premium on debt; weaker tourism, foreign direct investment, and capital inflows; and more pressure on defence spending. This, in turn, could prevent Saudi Arabia from achieving some of its Vision 2030 targets,"

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