Riyadh rent hike drives demand for home ownership

Jeddah - Yasmine El Tohamy - RIYADH: The Kingdom’s capital has experienced a significant surge in apartment rental prices in recent years, making it increasingly difficult for many residents to afford suitable accommodation.

This sharp rise in rental costs has led to a growing trend among Riyadh’s population to prioritize home ownership over renting, as they seek to gain more stability and control over their living situations.

According to recent real estate market data, the average rent for a one-bedroom apartment in central Riyadh has skyrocketed to over SR5,000 ($1,300) per month (numbers differ daily). For larger units, the costs can be even more staggering, with three-bedroom apartments often commanding monthly rents in excess of SR10,000, a CBRE.sa report states.

These exorbitant prices have placed a significant financial strain on many middle-class and lower-income families, forcing them to make difficult choices about their housing options.

“It’s become almost impossible for my family to continue renting,” said Shahad Al-Ghamdi, a young administrative manager living in Riyadh. “The rent for even a modest apartment eats up a large portion of my monthly salary, leaving little room for other expenses. I’ve been seriously considering taking out a mortgage and buying a home instead, as it would ultimately be more cost-effective in the long run.”

Al-Ghamdi’s sentiment is echoed by countless other Riyadh residents, who are increasingly viewing home ownership as a more viable and sustainable option compared to the ever-rising rental market.

To address this pressing issue, the Saudi government has introduced mortgage financing programs and other incentives to make it easier for citizens to purchase their own properties. As a result, the demand for home loans has surged, with many banks reporting a significant increase in mortgage applications over the past few years.

However, as highlighted by the experiences of residents like Romana Harmon, the government’s efforts to regulate the rental market through initiatives like Ejar platform have been perceived as largely ineffective.

Harmon described Ejar platform as unresponsive and biased toward landlords, with tenants feeling that their interests are not being adequately protected.

Romana said: “I have had experience with them (Ejar), and they do not respond to people who alert them to overly expensive apartments. They should protect both the landlord and tenant, but they don’t. They seem to be on the side of the landlord and owner.”

Harmon’s concerns raises the question of how can the system more effectively serve the people it is designed to help. Harmon’s own rental experience has been a rollercoaster of broken promises and escalating costs, with the landlord apparently increasing her rent by an astonishing 58 percent despite the standard maximum of 5-10 percent.

Harmon said that she was able to contact Ejar but they told her that there are no laws that stop the landlord from increasing a new lease.

Harmon, who is an expat working temporarily in Saudi Arabia, is not considering buying a house and has to deal with rent that keeps getting higher.  

Economist and financial analyst Talat Zaki Hafiz acknowledged the ongoing construction boom in Saudi Arabia which has a “value of construction outputs reaching $141.5 billion, a 4.3 percent increase compared to the previous year.”

Hafiz believes that this expansion in housing and office buildings may help narrow the gap between supply and demand, potentially leading to more balanced rental prices and improved housing affordability.

However, Hafiz also cautioned that other factors, such as interest rates and inflation, will play a crucial role in determining overall market dynamics. He remains optimistic about the future, but emphasized the need for continued efforts to address the root causes of the rental crisis and ensure that housing remains accessible and affordable for all.  

“But we are still in good condition compared to countries who are members of G20 and I believe solutions are taking place … it is matter of time to increase the supply of houses,” Hafiz added.

To truly address the rental crisis in Riyadh, the Saudi government must take a more comprehensive and responsive approach. This may involve strengthening rent control regulations, empowering regulatory bodies like Ejar to effectively protect tenants’ interests, and exploring innovative solutions to increase the supply of affordable housing units.

By addressing the systemic issues underlying the rental market, the government can help alleviate the financial burden on Riyadh’s residents and foster a more inclusive and prosperous future for the city.