83% of GCC-based high-net-worth-individuals (HNWI) are keen to purchase real estate in the Kingdom during 2023, according to global property consultant Knight Frank’s flagship 2023 Saudi Report.
In its survey of 107 GCC-based HNWI, each with a net worth of over US$500,000, excluding their main homes, carried out in partnership with YouGov, Knight Frank has found that GCC-based investors are hungry to enter the Kingdom’s real estate market, although the lack of financing options remains a barrier, while the attractiveness of the Kingdom’s large and established cities is more desirable than the country’s planned Giga projects.
Knight Frank expects that the bulk of the planned residential supply coming from Giga projects is likely to have a ticket price starting above US$ 1 million (SAR 3.75 million), however most of the Kingdom’s buyers have relatively modest budgets with just 13% willing to spend more than SAR 2.5 million on a home this year.
And so, Knight Frank wanted to explore the depth of demand for investing in Saudi amongst GCC-based HNWI, who may emerge as a significant source of demand in the future for the Kingdom’s planned slew of luxury homes.
RESIDENTIAL ALL THE WAY
The stellar price rises – up to 40% year on year for villas in some of Riyadh’s most sought-after neighbourhoods – has not escaped the attention of the region’s investors, with Knight Frank’s analysis showing that GCC-based HNWI would, for the most part, make a residential acquisition ‘purely for investment or capital gains’ (42%).
A second home (18%) and a buy-to-let (13%) follow in second and third place, respectively.
54% of those purchasing ‘purely for investment or capital gains’ have very high expectations for continued price growth – to the tune of 8% p.a. for the next 3-5 years.
Faisal Durrani, Partner – Head of Middle East Research explained: “The desire for GCC-based buyers to own real estate in the Kingdom exceeded our expectations with 83% keen on buying an asset this year. And their favourite asset class? Residential real estate is favoured by 29%.
“Mirroring Saudi nationals, GCC-based investors also appear to have a soft spot for branded residences, although they have even deeper pockets for this style of luxury living. Indeed, 55% of GCC-based HNWI would like to purchase a branded residential property in Kingdom. 63% are willing to spend over US$5,500 (c. SAR 20,000) per square metre on a branded residential property. For those with a net worth of over US$ 1 million, over a third (35%) claim they will spend over US$8,500 (c. SAR 32,000) per square metre. A very limited branded residential offering in the Kingdom means this sector remains a significant and untapped vein of opportunity”.
When it comes to the preferred property type (apartment vs. villa), net worth appears to be a significant factor, according to Knight Frank. For those with a net worth of less than US$1 million, apartments (62%) are the primary choice, while those with a net worth of over US$1 million, villas (56%) are in higher demand.
Branded residences are also high on GCC-based HNWI wish lists.
Harmen de Jong, Partner – Head of Real Estate Strategy & Consulting, Saudi Arabia, said: “Branded residential property often comes with significant premiums and our cohort of HNWI respondents appear to be well versed with this. Indeed, over half of our respondents (63%) are willing to spend over US$ 5,500 (c. SAR 20,000) per square metre on a branded residential property.
“When analysed by net worth, naturally, the percentage of those allocating higher budgets increases. For those with a net worth of over US$ 1 million, 35% claim they will spend over US$8,500 (c. SAR 32,000) per square metre, compared to just 11% for those with a net worth of less than US$1 million”.
RIYADH IS THE TARGET LOCATION FOR A NEW HOME
Knight Frank’s research also reveals a stark difference in the attitudes and appetite to purchase real estate in the Kingdom’s Giga projects amongst GCC-based HNWI, when compared to Saudi nationals.
De Jong added, “When asked where in the Kingdom they are most likely to invest, Riyadh is named as the top choice (29%) by GCC-based HNWI. Purchasing in one of the Giga projects (27%) is second to Riyadh, while the Holy City of Makkah (20%) ranks in third place.
“The lack of awareness and/or understanding may be behind the apparent limited appetite. It’s a case of ‘they know what they know and they don’t know what they don’t know’.”
THE FINANCING CHALLENGE
The lack of local financing options for international buyers and investors is often seen as a barrier to the development of a flourishing investment market in any part of the world and the same is likely true in the Kingdom, at least for the time being, according to Knight Frank.
Durrani outlined: “When presented with the option to have local financing offered by Saudi parties, GCC-based HNWI show clearly that the appetite for Saudi financing options is exceptionally high at 95%. Financing by a developer (57%) is the top preference, followed by financing by local institutes (38%).
“These results strongly hint at powerful lever that has the potential to radically alter the residential market’s demand dynamics”.
