Saudi Arabia Cools Blistering Property Surge to Lure Expats to Riyadh From Dubai - Bloomberg
Saudi Arabia is making dramatic changes to its real estate market as Crown Prince Mohammed bin Salman seeks to solve one of Riyadh’s biggest hurdles: A property crunch that’s hindering its ability to compete with the financial hubs of Dubai and Abu Dhabi.
From an unprecedented five-year freeze on rents to a quadrupling of taxes to encourage the construction of more homes and offices, reforms have been rolled out rapidly — all with a goal of improving the quality of life in a city the prince has placed at the center of his Vision 2030 diversification blueprint.
Local Saudis who are being priced out of the market are central to the government’s efforts and have long been key to its strategy for creating a more prosperous economy. Yet this time round, there’s an added audience — international conglomerates and foreign talent.
The ability to attract them is pivotal to Saudi Arabia’s vision of expanding into areas like private credit, artificial intelligence and alternative investing. Apartment prices in Riyadh have nearly doubled over the past five years, according to Knight Frank. Yet the city has struggled to deliver modern housing with amenities on a large enough scale for the executives it needs to compete as an international hub.
“When rent becomes 40% of income, not 15% or 20%, the city loses competitiveness,” said Elias Abou Samra, chief executive officer of Rafal Real Estate Development. “The real estate industry has to become a platform for Vision 2030, not a show-stopper.”
In recent months, Riyadh has begun throwing the kitchen sink at the soaring market in a bid to halt what MBS himself has called an unacceptable increase in prices.
In the first half of the year, apartment rents in Riyadh climbed 15% and villa rates climbed 8%, according to CBRE Group Inc., with locals and foreigners alike increasingly feeling the pressure.
Homes for rent in compounds, or gated communities with stores, pools, gyms and no dress code, usually have long waiting lists and prices ranging from $4,000 to $6,000 a month for a basic two-bedroom apartment.
While cheaper housing is available, a lot of Riyadh’s supply is made up of older properties. One broker who recently took an expat CEO house hunting in Riyadh said they struggled to find what he was looking for despite a long search.
Rates are also surging in the United Arab Emirates, particularly in Dubai, where home prices have jumped 70% since the end of 2019, according to Jones Lang LaSalle Inc. But unlike Riyadh, Dubai and Abu Dhabi have a vast supply of penthouses, villas and apartments equipped with high end amenities across a broad price and rental range. Demand for real estate in Dubai has surged since 2020, because of the government’s handling of the pandemic and liberal visa policies that attracted foreign buyers.
Bayut, a listing website, shows two bedroom apartments in the towers around Dubai’s financial center being rented from rates starting at around $3,000 a month.
Some of the pain in Riyadh’s property market has been self inflicted, brought on by goals to grow the population to 10 million by 2030 from about 8 million, while also luring hundreds of new firms to set up headquarters in the capital. Companies are offered tax breaks and promised an easier line of communication to players like the almost $1 trillion sovereign wealth fund if they commit to setting up a regional HQ in Riyadh.
Better and cheaper homes may not be enough to draw foreign workers for now. Expats often say that Riyadh offers limited choices on schools and healthcare, although the city has worked to offer new options and even opened a metro.
The five-year rent freeze is already helping to advance relocation offers for clients of AstroLabs, which helps companies set up in Saudi Arabia, according to Alex Nicholls, its director of expansion.
But some analysts warn the freeze has the potential to backfire in the long term by causing a slump in property investment. SNB Capital sees negatives for developers and real estate investment trusts with leased assets.
“That’s the way to disaster if you try to start to tackle and manipulate rents directly,” UBS Group Economist Matthias Holzhey said on Bloomberg Television. There are “other measures that have limited impact but may still slow down rental growth,” the economist said.
Even before the most recent moves, Riyadh’s property market had begun showing signs of cooling as it became less affordable. Supply has also been ramping up.
Not as eye-catching as the rent freeze but likely one of the more potent of recent reforms is the crown prince’s overhaul of rules around empty land in Riyadh.
Saudi Arabia shocked the industry this year with a new tax regime stipulating that anyone with more than 5,000 square meters of undeveloped land in high priority areas would see their annual tax rate quadruple to 10% — unless they start to build. The kingdom also slapped a levy of as much as 5% on land with vacant or unused buildings.
Put together, the moves are expected to boost the supply of land, homes and offices.
“In the last 10 days we were approached by at least five large landowners who are asking us to develop together,” Ziad El Chaar, chief executive of Dar Global — which has large developments inside Saudi Arabia and is also an international partner of the Trump Organization — said in an interview.
The Riyadh skyline and new metro line.Photographer: Tasneem Alsultan/Bloomberg
At question now is how the expected wave of new projects would be financed in current economic conditions: Saudi Arabia more than doubled its 2025 deficit forecast last week, while banks face tight liquidity conditions and slower lending growth.
That may open opportunities for private credit and real estate investment funds, private equity investors and family offices to step in with financing.
“Because of the capacity constraints, there will be something for everyone,” said Marc Pinto, global head of private credit at Moody’s Ratings.
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