Saudi inflation eases but real estate buoys the index

Reuters/Ahmed Yosri

Saudi inflation eased to 1.7 percent in September, from 2 percent the previous month, but the booming real estate sector continued to push up prices. 

Housing rents rose 9.8 percent, including a 19.8 percent increase in apartment rents, forming “the main driver of the inflation rate in September 2023”, the General Authority for Statistics said. 

Housing, water, electricity, gas and other fuels as a whole had 8.1 percent inflation, while the prices of restaurants and hotels rose 2.5 percent. The index hit a high of 3.4 percent in January.

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Increasing the number of Saudis in home ownership and developing the real estate sector are key elements of the Saudi government’s economic diversification plans. 

Although Saudi ownership is moving closer to the government’s target of 70 percent of the population, lending is expected to continue to feed the burgeoning sector. 

“It has been predominantly a mortgage show over the past few years,” said Benjamin Young, director of financial institutions ratings at S&P Global Ratings, at a forum in Dubai last week.

“As the market is becoming more saturated, we’re seeing a switch to a predominance of corporate lending instead.”

The non-oil economy has continued to grow in recent months, despite an economic slowdown due to Opec+ oil production cuts, pushed by Saudi Arabia to force up oil prices and store cash for its giga projects. 

The total value of real estate and infrastructure projects is $1.25 trillion, in addition to $250 billion of commissioned projects. These were mostly in housing, as the country plans to reach a population of 50 million by 2030, real estate consultancy Knight Frank said in a recent report. 

“One of the key goals of Vision 2030 was home ownership and we expect it to meet this goal even before 2030,” said Sapna Jagtiani, director of corporate ratings at S&P Global Ratings, at the Dubai forum.

“There’s still a lot to be done, there is a lot of migration happening in Saudi.

“People are moving from the smaller cities to Riyadh, Jeddah and Dammam so there are still shortages and the government is doing a lot to address them – and then there’s inflation.”