Real estate is a significant sector in the economy of Saudi Arabia, contributing to the country’s Gross Domestic Product (GDP). The real estate industry in Saudi Arabia has been forecasted to amount to 161.3 billion U.S. dollars in 2023, generating 9.4 percent of the country’s GDP. It is the second-largest contributing sector to the Saudi GDP and is linked to the growth of more than 120 other economic sectors.
Saudi Arabia’s real estate market is expanding mostly due to increased government spending brought about by the country’s increased oil production. Gross domestic product (GDP) growth in the nation was 8.6% in Q3 2022 and is predicted to reach 8.3% in Q4 2022 before slowing to 2.3% in 2023 and 3.7% in 2024. Government spending on infrastructure projects and rising tourism demand are also driving the real estate sector’s post-COVID revival.
Looking ahead, Deloitte’s 10th annual Real Estate Predictions report focuses on the performance of Saudi Arabia’s real estate market in 2023, forecasting the changes in the hospitality, residential, office, retail, industrial, and logistics sectors in 2024. Saudi Arabia’s gross domestic product (GDP) reached SAR 10.1 trillion (USD 2.6 trillion) in 2023, and the country’s real estate industry is expected to continue its growth trajectory in the coming years.
Overview of the Saudi Arabian Economy
GDP Composition
Saudi Arabia is a high-income economy and the largest Arab economy in the Middle East and North Africa region. The country’s Gross Domestic Product (GDP) was valued at $793.97 billion in 2020, making it the 18th largest economy in the world.
Role of Real Estate in the Economy
Real estate is a significant contributor to the Saudi Arabian economy, with the sector accounting for 8.4% of GDP in 2020. The sector is linked to the growth of more than 120 other economic sectors and is the second-largest contributing sector to the Saudi GDP. Saudi Arabia’s real estate industry is anticipated to expand at a compound annual growth rate (CAGR) of 7.89% from USD 64.43 billion in 2023 to USD 94.19 billion by 2028.
The real estate sector in Saudi Arabia is also a major employer, with over 1.5 million people working in the industry. The sector is expected to continue to grow as the government continues to invest in infrastructure and housing projects to support the country’s growing population.
In summary, although the government is working to diversify the economy and lessen its reliance on oil exports, the Saudi Arabian economy is heavily dependent on the oil and gas industry. A substantial portion of the nation’s GDP comes from real estate, which is predicted to increase as long as the government makes investments in housing and infrastructure.
Real Estate Sector Analysis
Market Segmentation
Real estate is a significant contributor to the GDP of Saudi Arabia. The real estate market in the country is segmented into various categories, including residential, retail, hospitality, office, and industrial. The real estate market is primarily driven by the residential and commercial sectors, respectively. Due to the increase in travelers in recent years, the hotel industry has been expanding gradually.
Key Economic Indicators
The growth rate of the real estate market in Saudi Arabia has been steady over the years. The average daily rate (ADR) and occupancy rates in the hospitality sector have also been increasing. The rents and sales prices in the residential and commercial sectors have been stable, with slight fluctuations in some areas. The office sector figures and occupier demand remained strong over the last quarter of 2022.
The Gross Domestic Product (GDP) of Saudi Arabia is projected to expand by 0.4% in 2023. The headline inflation has declined to 1.7% in September 2023. In Q2 2023, the unemployment rate in Saudi Arabia has declined to 4.9%. In Riyadh, Grade A rents rose by 12.9% reaching SAR 1,900 per square metre. In Jeddah, the Grade A offices increased 17.9% in the year to Q3 2023.
As the second-largest contributor to the Saudi GDP, real estate is associated with the expansion of over 120 other economic sectors, such as banking, finance, and construction. The decline in the number of mortgage contracts issued by banks by 15.9% year-on-year in Q3 2022 shows a slight decline in the real estate market. However, the total transaction volumes across Saudi Arabia totaled 37,743, indicating a stable market.
In conclusion, the real estate market in Saudi Arabia is a significant contributor to the country’s GDP and is segmented into various categories. The key economic indicators, such as growth rate, ADR, occupancy, rents, and sales prices, have been stable, with slight fluctuations in some areas.
Regional Real Estate Overview
Real Estate in Riyadh
Riyadh, the capital city of Saudi Arabia, is a major hub for real estate projects. The city is known for its modern office designs and is home to many multinational companies. The real estate market in Riyadh is driven by the demand for commercial and residential properties, with a focus on luxury apartments and villas.
The office sector in Riyadh has seen a significant increase in demand, with many companies looking to establish their presence in the city. The demand for office space has led to the development of many new commercial projects, which have contributed to the growth of the real estate sector in the city.
Real Estate in Jeddah
Jeddah is a major city in Saudi Arabia and is known for its hospitality sector and leisure activities. The real estate market in Jeddah is driven by the demand for luxury villas and apartments, with a focus on waterfront properties.
The hospitality sector in Jeddah has seen significant growth in recent years, with an increase in the number of visitors to the city. This has led to the development of many new hotels and resorts, which have contributed to the growth of the real estate sector in the city.
Overall, the real estate sector in Saudi Arabia has seen significant growth in recent years, driven by the demand for commercial and residential properties. The focus on luxury apartments and villas, as well as the development of new commercial projects, has contributed to the growth of the sector.
Impact of Real Estate on GDP
Contribution to GDP by Sector
Real estate is a significant contributor to the GDP of Saudi Arabia. The real estate sector accounted for approximately 7.4% of the country’s GDP in 2020. The industry has a vast impact on other sectors such as construction, hospitality, retail, office, and industrial. The construction sector, in particular, is heavily reliant on the real estate industry, with the majority of construction projects being driven by demand from the real estate sector.
Investment Trends and Future Outlook
The real estate industry in Saudi Arabia has seen significant growth in recent years, with investments in the sector reaching SAR 1.2 trillion in 2020. Additionally, there has been a shift in the industry toward advancements that are more ecologically friendly and sustainable, with an emphasis on energy efficiency and lowering carbon emissions.
According to the market study, estimates suggest that the real estate industry will maintain its current development trajectory in the upcoming years due to a rise in demand for both residential and commercial properties. With a minor increase in occupancy rates for residential buildings, the industry’s occupancy performance has stayed steady.
In terms of the currency, the real estate industry in Saudi Arabia is heavily influenced by fluctuations in the USD/SAR exchange rate. The value of the SAR has been relatively stable in recent years, which has helped to maintain investor confidence in the market.
Overall, the real estate industry in Saudi Arabia is a vital contributor to the country’s GDP and is expected to continue to grow in the coming years. With an emphasis on ecologically friendly and sustainable advancements, the sector is well-positioned to satisfy changing consumer preferences.
Influential Factors and Trends
Saudi Arabia’s real estate market has experienced rapid expansion in recent years, substantially boosting the GDP of the nation. This expansion has been attributed to a number of trends and factors, such as the post-Covid market dynamics, real estate development, and innovation.
Post-Covid Market Dynamics
Saudi Arabia’s real estate market has been significantly impacted by the Covid-19 pandemic. The emergence of hybrid work methods brought on by the epidemic has increased demand for flexible workspaces. The real estate industry has benefited most from this trend since it has significantly raised demand for office space.
Innovation and Development in Real Estate
The Saudi Arabian real estate market has grown significantly as a result of innovation and progress. Experience spaces and wellness-focused elements have become more prevalent in the industry, drawing in more investors and consumers. Modern features including energy-efficient architecture, smart home technology, and sustainable materials are being included by developers in response to the growing desire for modern, eco-friendly living spaces.The Saudi Arabian real estate market has grown significantly as a result of innovation and progress. Experience spaces and wellness-focused elements have become more prevalent in the industry, drawing in more investors and consumers. Modern features including energy-efficient architecture, smart home technology, and sustainable materials are being included by developers in response to the growing desire for modern, eco-friendly living spaces.
Overall, the real estate sector in Saudi Arabia has been witnessing significant growth, driven by various factors such as post-Covid market dynamics and innovation. With the growing demand for modern and sustainable living spaces, the sector is expected to continue to grow in the coming years.
Regulatory Environment and Initiatives
Government Policies and SME Support
The government of Saudi Arabia has put in place a number of laws and programs to aid the nation’s small and medium-sized businesses (SMEs) and real estate industry. The Vision 2030 plan is one such effort that seeks to lessen the nation’s reliance on oil while also diversifying the economy. The government has set a goal to raise the real estate industry’s GDP share of the nation to 10% by 2020 as part of this plan.
To support SMEs in the real estate sector, the government has launched the “Mashroat” program, which provides technical, financial, and administrative support to SMEs. Additionally, the government has established the Real Estate Development Fund (REDF), which provides financing and support to individuals and companies in the real estate sector.
Home Ownership Programs
The Saudi Arabian government has also launched various programs to increase home ownership in the country. One such program is the “Sakani” program, which aims to provide affordable housing to citizens and improve the quality of life in the country. The program provides various services, including financing, land allocation, and construction support, to help citizens purchase or build their own homes.
In addition to the Sakani program, the government has also launched the “Eskan” program, which provides housing loans to citizens and supports the development of the residential market in the country. The program aims to increase home ownership in the country from 47% to 60% by 2020 and 70% by 2030.
Overall, the regulatory environment and initiatives in Saudi Arabia have been supportive of the real estate sector, SMEs, and home ownership programs. These policies and initiatives have helped to increase the contribution of the real estate sector to the country’s GDP and provide affordable housing to citizens.
Economic Forecasts and Projections
Expert Analysis by Deloitte and Oxford Economics
A Deloitte and Oxford Economics analysis projects that Saudi Arabia’s real estate market would expand at a compound annual growth rate of 6.3% from 2021 to 2025. The report emphasizes how the government’s initiatives to diversify the economy, rising housing costs, and the expansion of the logistics industry are all contributing factors to the sector’s rise.
The study also notes that Saudi Arabia’s real estate market is expected to benefit from new regulations intended to improve transparency and the investment climate. The study also highlights how the government’s efforts to attract foreign investment are expected to hasten the expansion of this industry.
Projected Growth and Market Trends
Stefan Burch, the CEO of JLL MENA, a leading real estate consultancy firm, predicts that the real estate market in Saudi Arabia will continue to grow in the coming years.
The global real estate services company Cluttons’ Head of Research, Oliver Morgan, also believes that Saudi Arabia’s real estate industry will keep expanding in the years to come. According to Morgan, the government’s initiatives to draw in foreign investment and diversify the economy should accelerate the sector’s growth.
Overall, the GDP of Saudi Arabia is anticipated to benefit from the real estate sector’s predicted growth rate. The primary forces behind the sector’s growth are anticipated to be the expansion of the logistics industry and the rising need for reasonably priced homes.
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Frequently Asked Questions
What percentage of GDP does the real estate sector represent in Saudi Arabia?
As of 2021, the real estate industry in Saudi Arabia accounts for around 8.9% of the country’s GDP, making it the second largest contributor to GDP. This industry is an essential component of the Saudi Arabian economy since it is linked to the expansion of over 120 other industries.
How has the real estate market size in Saudi Arabia changed over recent years?
The Saudi Arabian real estate market has seen a significant upswing in the last several years. The market is projected to rise from USD 64.43 billion in 2023 to USD 94.19 billion in 2028 at a compound annual growth rate (CAGR) of 7.89%. In the final quarter of 2022, both the number of offices and occupier demand remained consistent, especially in Riyadh where stock levels are still very low.
What is the contribution of the housing sector to Saudi Arabia’s economic growth?
The housing sector is an essential contributor to Saudi Arabia’s economic growth. The sector has been growing rapidly, and it is expected to continue to grow in the coming years. The Saudi Arabian government has been making significant investments in the housing market, which has increased GDP in the nation.
What role does the Ministry of Housing play in Saudi Arabia’s GDP through real estate?
Through real estate, the Saudi Arabian Ministry of Housing contributes significantly to the GDP of the nation. The ministry is in charge of creating and carrying out housing policies, initiatives, and projects that satisfy the requirements of the populace. The country’s GDP has benefited from the ministry’s efforts to strengthen the real estate industry.
How does home ownership in Saudi Arabia impact the country’s gross domestic product?
Homeownership in Saudi Arabia has a positive impact on the country’s gross domestic product. Owning a home is a crucial part of the Saudi Arabian culture, and it is seen as a symbol of stability and security. Homeownership helps to boost the real estate sector, which, in turn, contributes to the country’s GDP.
What are the economic effects of Saudi Arabia’s housing programs on its GDP?
Saudi Arabia’s housing programs have had a positive impact on the country’s GDP. The government has been investing heavily in the housing sector, which has helped to boost the real estate market. The housing programs have also created jobs and stimulated economic growth, which has had a positive impact on the country’s GDP.
