Saudi Banks’ Real Estate Loan Portfolios Skyrocket to SR800.5 Billion in Q1 2024
In a staggering 13 percent increase from the previous year, Saudi banks’ real estate loan portfolios reached an impressive SR800.5 billion ($213.5 billion) in the first quarter of 2024, according to the latest official data released by the Saudi Central Bank, also known as SAMA.
Retail Dominates Real Estate Lending, Corporate Sector Sees Rapid Growth
Figures from SAMA showed that 78 percent of the real estate loans were directed towards retail, while the remaining 22 percent were allocated to the corporate sector. Despite retail loans holding the largest share, the corporate sector experienced a rapid 26 percent growth, outpacing the 10 percent growth in individual borrowing.
Vision 2030 Projects Fuel Corporate Real Estate Lending Boom
The rapid growth in corporate real estate lending can be attributed to the swift implementation of the Kingdom’s giga-projects in line with Vision 2030. These ambitious projects demand substantial financing, leading to a surge in corporate loan demand and an acceleration in their growth rate.
Residential and Commercial Real Estate Price Trends Impact Lending
Residential real estate prices saw a 1.2 percent increase in the first quarter of the year, while commercial property prices decreased by 0.5 percent. This price discrepancy likely made commercial properties more attractive to corporate investors, boosting demand for commercial real estate loans.
New Residential Mortgages Increase, Shift Towards Apartments Noted
New residential mortgages issued to individuals by banks totaled SR27.44 billion in the first four months of 2024, marking a 2 percent increase from the previous year. Despite houses making up 67 percent of the new loans, lending for apartments saw a 9 percent increase and land credit grew by 5 percent.
Expatriate Influx Expected to Drive Real Estate Market Growth
Saudi Arabia’s ambitious plans to double Riyadh’s population and attract 9 million people to The Line urban development project by 2045 are expected to fuel real estate market growth. Recent visa reforms, such as the Premium Residency Program, aim to attract skilled expats, investors, and entrepreneurs to stimulate job creation and investment.
Shift in Real Estate Preferences Among Expats, Millennials Opt for Apartments
A survey revealed that 77 percent of Saudi-based expats expressed a desire to buy property, with millennials viewing real estate as a solid investment. The shift from villas to apartments among expats may be influenced by cost considerations, affordability, and cultural differences.
Strict Lending Environment and Mortgage Regulations Impact Market
In response to the global financial crisis, lenders have implemented stricter requirements, including lower loan-to-value ratios. SAMA has capped the loan-to-value ratio on residential mortgage loans at 90 percent to maintain a stable housing market. The Registered Real Estate Mortgage Law is expected to further tighten lending practices in the future.