Saudi Arabia: Real estate transactions are set to surge in Saudi Arabia in 2024 thanks to Vision 2023 investments, according to an S&P Global report.

In a report titled “GCC Real Estate How Credit Stories Have Evolved,” S&P believes the Kingdom’s property sector will also benefit from economic growth of up to 3 percent in the Gulf Cooperation Council region for the current year. 

The rise was attributed to sustained oil-related expansion and an increase up to 5 percent in the non-oil economic activity, particularly in Saudi Arabia and the UAE.

Referring to the Kingdom, the report said: “Sensitivity to high interest rates and price increases led to a reduction in real estate transactions in 2023. We expect the demand to remain robust backed by Vision 2030 investments attracting new businesses and expats to the country.”

It further explained that the decline in interest rates from the second half of 2023 is seen as a catalyst for the mortgage sector after a 35 percent drop across the whole of the year, particularly with the introduction of a new visa regime that enables foreigners to own real estate, thereby stimulating demand and spurring new construction projects.

The study delved into the opportunities and risks present in the real estate markets of GCC countries, offering insights into potential areas of expansion.

“Population growth of 2-3 percent is a boost to the real estate sector. This is sustained by GCC governments’ reforms to support new businesses and expat inflow, including new visas, corporate-ownership rules, as well as new technology regulations,” the report explained.

Additionally, it conveyed optimism for a strong rebound in tourism supported by government initiatives, along with limited cost inflation preserving consumer purchasing power. Potential for interest rate declines from the second half of 2024 could further enhance affordability.

On the risks side, S&P said that geopolitical tensions remain a concern, with potential impacts on global and regional economies. 

"Shortage of real estate in Riyadh will keep upward pressure on prices, deterring some buyers amid high mortgage rates,” it added.

Moreover, a slow global economy could reduce demand from foreign buyers, while a possible decline in oil prices might affect regional buyer interest.

S&P predicted a cooling of Dubai’s residential property market over the next 12 to 18 months due to increased supply and global economic pressures. 

Nonetheless, developers in the emirate have bolstered their cash balances, improving their credit health in anticipation of the impending cyclical slowdown.

Particularly in the Dubai real estate market, there has been a significant uptick in prices and transaction volumes since 2021. This has greatly contributed to the swift recovery of credit quality among local players.

Meanwhile, Abu Dhabi’s residential real estate market, having not experienced the same rapid appreciation as Dubai, suggests a lower risk of market reversal.

Qatar’s real estate sector is currently undergoing a “cyclical correction after the boost related to the World Cup in November-December 2022,” according to the report.

Oversupply issues have led to price and rental declines, with pressures expected to persist over the next two to three years, despite limited new supply.

Overall outlook

Over 85 percent of GCC-rated real estate companies have a stable outlook, indicating S&P’s expectation of steady operating performance. 

“Real estate markets in various GCC countries exhibit different dynamics. But rated sector companies enjoy relatively stable credit quality after a volatile few years that saw downgrades, recovery, and restoration of credit profiles for most of the rated real estate companies in the region,” the report added.

Currently, the majority of GCC-rated real estate companies have either returned to or surpassed their 2019 rating levels.