Saudi Arabia's real estate sector has seen a remarkable growth in loans, which rose by 15.12 percent year-on-year, culminating in a total of SR883.3 billion ($235.54 billion) by the end of 2024, as per data from the Saudi Arabian Monetary Authority (SAMA).

This surge in financing reflects robust demand from various market segments, particularly retail and corporate borrowers.

Notably, corporate real estate loans expanded by 26.23 percent, reaching SR202.04 billion.

Individual loans represented a significant portion of this total, with lending to individuals increasing by 12.19 percent to SR681.24 billion.

Currently, real estate financing accounts for approximately 30 percent of total loans from Saudi banks, which are estimated to be SR2.96 trillion at the end of the same period.

This shift indicates an increasing confidence in the Kingdom's real estate market, fueled by substantial institutional capital directed towards high-end commercial and residential projects as part of Saudi Arabia's broader economic diversification initiatives under Vision 2030.

Industry experts note that the market is transitioning towards a higher level of sophistication, as both local and international institutional investors adopt long-term investment strategies in large-scale mixed-use developments.

Abou Samra, CEO of Rafal Real Estate, highlighted that corporate clients are leveraging favourable financing conditions to invest in significant projects, marking a drift towards more complex financing structures that align with the Kingdom’s urban development aspirations.

The real estate landscape in Saudi Arabia has shifted markedly post-COVID, with many developers emerging to cater to evolving demand through low-rise developments predominantly funded by off-plan sales.

However, the trend is changing as newer projects focus more heavily on mixed-use developments that generate income, thereby necessitating increased debt financing.

Recent mega projects, such as Sports Boulevard and King Salman Park, have drawn considerable international investor interest as they progress into development stages.

Abou Samra pointed out that the Ministry of Housing has established an integrated value chain to facilitate all aspects of real estate development, thereby enhancing project efficiency and adherence to established national standards.

Additionally, the collaboration between real estate firms and banks has become stronger, with many companies, including Rafal Real Estate, operating in conjunction with the National Housing Co. This collaboration is designed to streamline the financing processes and ensure developers can respond to the heightened demand for high-quality residential and mixed-use projects.

For instance, Rafal recently launched the Tilal Khuzam project, introducing nearly 3,600 apartments.

The initial phase recorded rapid sales, with all units sold within four months, a testament to the efficiency of the integrated development approach facilitated by government partnerships.

In a broader economic context, a report from Knight Frank indicated that Saudi Arabia's real estate market is experiencing considerable price pressures, particularly in key urban centres like Riyadh and Jeddah.

These cities have encountered double-digit price growth, influenced by factors such as increased urban migration and significant investments associated with Vision 2030. The sharp rise in property prices poses affordability challenges for average buyers, stressing the necessity for policy interventions and innovative financing solutions.

Moreover, the disparity between Riyadh and other Saudi cities is becoming more pronounced, with Riyadh’s real estate market showing signs of overheating.

Despite this, there remains a stable demand in other regions at more sustainable price levels.

The influx of expatriates and a growing young Saudi population have shifted market preferences towards modern apartments that align with urban lifestyles.

As for future lending conditions, Saudi Arabia’s benchmark interest rates, which are influenced by U.S. monetary policy due to the riyal's peg to the dollar, reached a peak of 6 percent in July 2023. However, the central bank has implemented three successive rate cuts starting in September 2024, thereby easing the benchmark rate to 5 percent.

This trend is anticipated to lower borrowing costs, stimulating further demand for real estate financing.

Despite expectations of sustained higher interest rates over the coming two years, the real estate sector has displayed resilience.

Collaborative efforts from the Ministry of Municipalities and Housing and affiliated agencies have resulted in the introduction of alternative funding options.

These measures are aimed at reducing reliance on traditional bank financing and maintaining accessibility in the marketplace amidst rising global inflation and local market pressures.