44% Of Saudi Homeowners Want To Buy A Second Home

 44% of homeowners in Saudi Arabia are looking for a second home for personal use, according to Knight Frank’s annual 2022 Saudi Residential Survey - https://www.knightfrank.ae/saudi-arabia-residential-survey carried out in partnership with YouGov.

The global property consultant’s annual survey of 1,003 Saudi national households around the Saudi cities of Riyadh, Jeddah and Dammam has highlighted the depth and breadth of demand for second homes in the Kingdom as its residential market continues to expand at an exceptional pace.

Faisal Durrani, Partner – Head of Middle East Research, Knight Frank, explained: “For the very first time, we have been able to quantify the quantum of demand for second homes in the Kingdom. With 44% of households keen on acquiring another home, the substantial size of the yet untapped second homes market has been unmasked.

“What’s more, the scales are relatively evenly balanced in terms of the intended use, with 49% of homeowners saying the purchase would be driven by investment considerations, specifically rental yields, while 44% say it will be solely for family use. These findings will undoubtedly strengthen the resolve of the Kingdom’s Giga project developers to deliver their planned mostly-luxury residential developments”.

Durrani cautioned however: “It’s clear there is a vibrant second homes market that is waiting to bloom, but developers around the country need to be wary of the size of the pool of buyers, plus the fact that just 29% have budgets of over US$ 800,000. Our understanding suggests that most Giga projects are planning the bulk of starting prices at around US$ 1 million, suggesting there may be a risk of an oversupply of luxury homes in the future”.

Clearly many interlocking factors ranging from speed of delivery, eventual sales prices and the potential for external demand may all cushion the market from such an eventuality, according to Knight Frank.

Knight Frank’s survey shows that second home budgets are lowest in Riyadh, with 22% of respondents in the capital willing to spend over US$ 800,000, while this figure is much higher in both Dammam (28%) and Jeddah (45%).

Structural changes

A central pillar of Vision 2030 has been to improve the lives of Saudi citizens. One of the ways in which this is being achieved is through the provision of world class housing, with over 1.3 million new homes planned before 2030, according to Knight Frank. However, this figure is likely to fall short of projected demand.

Harmen de Jong, Partner – Real Estate Strategy & Consulting, Knight Frank, explained: “It’s not just affordability that’s becoming an issue, especially when it comes to villas. It is now also more culturally acceptable for a family to buy an apartment as their first home. Also, the young demographic of the country – 56% are below the age of 35, are expected to be less in favour of multi-generational living going forward, creating even more demand for housing.

“We are already witnessing a decrease in household sizes. Furthermore, with job creation rates accelerating in the Kingdom’s economic heart, Riyadh, demand for single-person dwellings is likely to accelerate, hinting at the start of a structural shift in the market’s demand dynamics, which should offer some encouragement to developers planning for a doubling of the city’s population to over 15 million by the end of the decade”.

Demand from first-time buyers

Knight Frank’s survey also investigated the homeownership aspirations of the Kingdom’s residential tenants. The survey has revealed that 84% of tenants want to buy their first home within the next 12-months. 

“There is an ongoing intensification of demand at both ends of the price spectrum and the fact that the vast majority of renters are looking to transition to home ownership underscores the depth of the desire to own a home”, de Jong said.

“There is a clear discrepancy between the aspirations of first-time buyers and financial realities. 48% of tenants have a budget of between US$ 200-800,000, with 31% keen on buying a villa and a further 48% will target apartments. At these price points, in cities such as Riyadh, finding a home that lives up to the quality expectations of first-time buyers will be challenging, especially given the rampant house price growth in the city since the National Transformation Plan was unveiled”, Durrani highlighted.

Apartment prices have risen 14.4% in Riyadh since 2019 Average two bedroom apartments in Riyadh, of a good quality sell for over SAR 750,000, while three- or four-bedroom villas usually sell for in excess of SAR 2.3 million, highlighting the discrepancy between expectations and market realities, Knight Frank points out.

Saudi Arabia top target for Kingdom’s first-time buyers

Perhaps unsurprisingly, 80% of Saudi tenants will be looking to buy their first home within the Kingdom, according to Knight Frank’s survey, but there are those who are looking further afield.

Arguably one of the most intriguing finds of our survey has been the emergence of a group of Saudi nationals who aspire to buy their first home outside the region altogether. At 11% overall, this figure is even higher than the United Arab Emirates at 3%. What’s more, zooming into Riyadh and Jeddah reveals that this aspiration is higher still at 13% each, Durrani explained.

Knight Frank says the data may be indicative of those who “own” through the virtue of ancestral, or family homes, but equally it may be reflective of those who are unable to get on the property ladder due to affordability constraints, or the lack of suitable options, which our survey has strongly hinted at, especially for lower income groups.