Real Estate Price Index Bulletin for the First Quarter of 2023 in the Kingdom of Saudi Arabia

The General Authority for Statistics issued the real estate price index bulletin for the first quarter of 2023. The bulletin covers developments in real estate prices by measuring the values ​​and changes of general and sectoral indicators covering the Kingdom and its regions over a period of three months. The general real estate price index consists of indices for the real estate sectors and their residential, commercial and agricultural components. Residential real estate represents 65 percent of the importance of the general real estate index, while the share of commercial and agricultural real estate amounts to 31 and 4 percent of the general index, respectively.

The real estate price index bulletin for the first quarter of 2023 indicates a limited quarterly decline after five consecutive quarterly improvements. Real estate prices declined during the first quarter of 2023 by 0.1 percent compared to their general levels in the fourth quarter of 2022. The Qassim region recorded the strongest quarterly decline by 1.4 percent, followed by the Najran region by 0.4 percent, but most of the negative impact came from the decline in real estate prices in the regions of Riyadh and Makkah Al-Mukarramah by 0.2 and 0.3 percent, respectively, given their high relative importance in relation to the general index of the Kingdom. The decline in residential real estate prices across the Kingdom by 0.2 percent stopped behind most of the quarterly decline for the period. The decline in real estate prices was concentrated in residential lands, whose prices fell by 0.2 percent. The prices of villas, buildings, and apartments witnessed declines of 2.0, 0.9, and 0.1 percent, respectively. As for commercial real estate prices, they remained almost constant. On the other hand, agricultural real estate prices declined by 0.1 percent, but their impact on the general real estate index was limited, due to their low relative importance.

The general real estate price index increased in the first quarter of 2023 by 1.0 percent year on year, compared to the same period last year. The annual improvement for the period declined from the previous period, which witnessed an increase of 1.6 percent, which may indicate a lull in real estate exchanges. During the first quarter of 2023, the Riyadh region recorded the strongest annual increases by 3.0 percent, followed by the Jizan region by 2.2 percent, while the Qassim region witnessed the strongest annual declines by 2.3 percent. Behind the general annual rise in the real estate index during the period was the annual residential real estate prices growth of 1.6 percent. And had it not been for the lackluster growth of commercial real estate prices, which did not exceed 0.1 percent, and the decline in real estate and agricultural prices by 0.4 percent during the period, the general real estate index would have improved year on year by a higher rate. The increase in the residential real estate index came as a result of the increase in the prices of land and apartments by 1.6 and 2.1 percent, respectively, while the prices of villas and residential buildings decreased by 0.3 and 0.9 percent, respectively, during the period.

The data of the Ministry of Justice on the total values ​​of real estate transactions in the Kingdom support the hypothesis of a decline in demand during the first quarter of 2023 compared to the previous quarter. It was not possible to obtain data on the total values ​​of real estate transactions in the Kingdom for the first quarter of the Gregorian calendar 2023 during the preparation of the article, but data close to the third Hijri quarter of 1444 AH were available, which indicates – although it is not final – that there was a strong decline in the total values ​​of real estate transactions in the Kingdom during the period . The decline is clearly concentrated in the values ​​of residential real estate transactions, which confirms what the real estate markets benefit from a strong decline in real estate exchanges in recent months.

The demand for real estate has grown in the long term over the past few years, which supported the rise in prices, but the short term witnessed during the first quarter of 2023 a strong decline, which contributed to curbing the wave of long-term rises. During the past few months, some disincentives to real estate demand have emerged, perhaps the most prominent of which is the strong rise in prices during the past few years, which seems to have exceeded the acceptance of increasing numbers of real estate seekers. In view of the difficulty of real estate exhibitors responding to the decline in demand and the tendency to wait until demand improves, it is likely that the coming periods will witness a cooling in real estate exchanges and in real estate prices. In addition, the escalation of interest rates contributed to reducing the demand for real estate, and residential ones in particular. This was evident in the sharp decline in the values ​​of residential real estate deals compared to the total values ​​of commercial deals across the Kingdom.

The rapid increases in interest rates, coinciding with the rise in prices, raised the costs of financing real estate, and mortgage payments exceeded the capabilities of increasing segments of the population. The demand for residential real estate is affected by interest changes to a stronger degree than the demand for commercial real estate, as merchants tend to add mortgage costs to consumers in commercial real estate, while those looking for housing pay the additional costs from their net income, and it appears that residential real estate seekers depend more on credit. Commercial real estate buyer. On the other hand, the rise in real estate financing costs and prices is prompting an increasing number of housing seekers to delay purchase decisions until the wave of rises subsides and credit costs decrease, or to wait for obtaining some housing products in subsidized real estate projects.