RIYADH: Saudi banks extended SR7.67 billion ($2.05 billion) in residential new mortgage loans to individuals in May, reflecting an annual 13 percent rise, according to the latest data.

Figures released by the Saudi Central Bank, also known as SAMA, showed that this amount marked a 16-month high.

In May, lending for houses accounted for 67 percent of total new bank mortgages, a decrease from 69 percent compared to the same month last year.

Recent data on mortgage figures is a testament to the sustainable demand in housing coupled with an agile and efficient regulatory environment.

Elias Abou Samra, CEO at Rafal Real Estate Development Co.

Meanwhile, lending for apartments increased to 28 percent from 25 percent, while land constituted the smallest portion at 5 percent, down from 6 percent.

Elias Abou Samra, the CEO at Rafal Real Estate Development Co., said: “Recent data on mortgage figures is a testament to the sustainable demand in housing coupled with an agile and efficient regulatory environment.”

He added: “We believe that the market has priced in higher-for-longer interest rates and the buyers are convinced that waiting for normalization of interest rates to buy new homes could be offset by a larger increase in prices.” 

Interest rates in the Gulf Cooperation Council nations are significantly influenced by their currency pegs to the US dollar.

This pegging arrangement means that these countries typically follow US monetary policy decisions, particularly those set by the Federal Reserve. Recently, high interest rates in the market have posed challenges for individuals seeking housing loans, as the cost of credit has escalated.

Many had been anticipating a reduction in those rates by the Fed, which could potentially alleviate borrowing costs. However, the current outlook remains uncertain due to persistently high inflation rates in the US.

This uncertainty casts a shadow over the possibility of decreased rates in the foreseeable future, impacting both financial markets and consumer decisions in the housing sector across GCC economies.

However, according to Abou Samra, after a period of wait-and-see, the housing market in the Kingdom is now beginning to regain some of the momentum and activity it had shown before interest rates rose.

Essentially, potential buyers have overcome their initial hesitancy, likely influenced by elevated borrowing costs, and are now actively pursuing homeownership, thereby boosting their demand for bank credit.

The highest growth rate during this period was observed in apartment lending rising by 24.15 percent. In comparison, house lending grew by 9.17 percent, while land saw a growth of 6.54 percent.

“Another important factor is the availability of new products and typologies, particularly in the multi-family segment, that meets the aspiration of young Saudi families and resident expats. We are moving into a higher level of sophistication on the demand and supply side of the equation,” Abou Samra said.

A survey conducted by global property consultancy Knight Frank revealed in a March report a notable shift in expat preferences, with 68 percent expressing a strong inclination towards owning an apartment rather than a villa. This preference is particularly strong among those aged 35-55.

The firm also noted that many respondents are moving from villas to apartments, influenced by factors like the higher costs of the former, affordability concerns, and potentially differing cultural preferences compared to Saudi nationals.

Additionally, the appeal is further highlighted by the fact that 53 percent of surveyed expats expressed a preference for owning a two or three-bedroom apartment. This inclination is likely due to the smaller family sizes typically found among them compared to Saudi nationals.

A 2024 study by Deloitte revealed that in Riyadh, around 80 percent of apartment transactions the previous year fell within the SR250,000 to SR1 million range, primarily serving the low to mid-income segments.

It noted that north Riyadh has become a prominent residential area, while the south zone has seen significant transaction growth due to affordable housing options.

In Jeddah, there is increasing demand for upper-middle to high-end residential properties, particularly in the Northern part, which has experienced notable price increases.

In the Dammam Metropolitan Area, the report indicated that the residential supply is concentrated in the northern regions, targeting the midscale population segment with apartments priced mostly below SR930,000.

When asked about the potential risks of increased demand further driving up prices, especially given the lack of foreseeable interest rate reductions, Abou Samra said that he believes his real estate company has navigated through the challenges posed by high interest rates, noting a slowdown in growth over the past 18 months.

He expressed confidence in the sustainability of current demand levels, stating that a slowdown is not anticipated in the near future. The CEO also emphasized the importance of maintaining a balanced market to prevent excessive increases in land prices.