Posted inNews

Muslim HNWIs eyeing multi-billion dollar investments in Makkah and Madinah real estate

Muslim global high-net-worth individuals are poised to invest US$2 billion in real estate in Makkah and Madinah, driven by personal, investment, and cultural motivations

Muslim HNWIs eyeing real estate in Makkah and Madinah

Muslim global high-net-worth individuals (HNWIs) are willing to invest almost US$2 billion in real estate in Makkah and Madinah, according to Knight Frank’s Destination Saudi report. A survey of 506 HNWI from nine countries found that 30% prefer Makkah for property purchases in Saudi Arabia, followed by 25% for Riyadh and 19% for Madinah. The respondents collectively own over 2,250 homes, with 29% owning between 3-5 properties. These findings are in line with the government’s new premium residency options, which include a property-ownership-linked visa.

Faisal Durrani, Partner – Head of Research, MENA, mentions, “1.8 million pilgrims performed Hajj during 2023. For many, this is a lifelong ambition, which is intrinsically attached to a desire to visit and/or live in Saudi Arabia. The fact that 84% of global HNWI interested in purchasing in Saudi would like to do so in one of the Holy Cities underscores the depth of pent-up demand for home ownership from outside the country. And the demand appears to be genuine, with 48% of those looking to purchase a property in Makkah intending to use it as a main residence.”

Harmen de Jong, Regional Partner – Head of Consulting, MENA added: “The new premium visa for property owners is a welcome move by the authorities. It is likely to bolster demand at a time when affordability and shifting residential market demand dynamics, largely driven by a greater desire among young intra-Saudi migrants to rent rather than own, have been slowing the level of deal activity. Indeed, nationwide residential sales volumes were down 16% last year.”

Knight Frank reported a 17% decrease in real estate transaction volumes in Saudi Arabia in 2023, with a 9% decline in the total value of all deals. Muslim global HNWIs have an average budget of US$4.7 million for properties in the Holy Cities, with 40% willing to spend over US$5 million for properties in Makkah.

Durrani explains, “The US$ 4.7 million average Muslim global HNWI budgets for homes in the Holy Cities will undoubtedly give further impetus to the Giga project developers, many of whom we expect will begin marketing homes from upwards of US$ 1 million, which sits above the bulk of domestic Saudi budgets – two-thirds of Saudi’s have a home purchase budget of up to $405,000 (SAR 1.5 million).”

The majority of international HNWI buyers, 82%, are interested in owning real estate in Saudi Arabia. Their desire is driven primarily by the view of the country as a good investment opportunity (60%) and cultural/religious reasons (45%). A significant portion, 22%, are looking to complete a purchase within this year, while 33% are aiming to own property in the Kingdom within the next 12-24 months. Speed and investment potential are key factors influencing their decision to purchase property in Saudi Arabia.

Cash transactions

The majority of those wanting to purchase a property in Makkah prefer to pay the full amount (66%) at the point of transaction, with only 33% stating they would like to follow a payment plan. Similarly, for those considering Madinah, 54% are keen to pay for the property in full at the time of purchase, with the rest seeking a payment plan, according to Knight Frank’s analysis.

The desire to purchase the property entirely using cash rises exponentially with personal levels of wealth, rising from 31% for those with a net worth of under US$ 500,000 to 78% for those worth more than US$ 3 million.

Mohamad Itani, Partner – Head of Residential Project Sales & Marketing, Saudi Arabia, adds, “While the global wealthy have a strong appetite to invest in the Kingdom, the challenge for developers will be to balance the expectations of the global wealthy with domestic buyers. For instance, 77% of those wanting to buy a property in Makkah are interested in apartments, while the desire for apartment living in Madinah is even higher at 84%. This is in sharp contrast to Saudi nationals, less than half of whom are interested in owning an apartment.”

High expectations

According to Knight Frank’s research, 23% of Muslim global high-net-worth individuals looking to buy property in Makkah want to be within walking distance of the Haram, while 63% expect to have direct views and be able to hear the prayers at the Haram.

Those interested in purchasing Madinah are slightly more relaxed in their expectations. While 40% expect to have some degree of access to the Haram (either by walking or through public transportation), only 25% expect to be within walking distance, and under half (46%) expect direct views and to be able to hear the Haram prayers.

Investors for the Holy cities also have high capital value growth expectations, with 37% expecting annual price growth of 6-10% in Madinah, while separately nearly a third (31%) are expecting the same rate of increases in Makkah. Prices in Makkah have risen by an average of 5.5% over the last 3 years, compared to 5% in Madinah over the same period. This may prove to be a short-term challenge for developers as price growth across the country in this current cycle starts to peak. The other significant factor, according to Knight Frank, is off-plan versus ready property, with just 30% of global HNWI interested in the off-plan sales market in the Kingdom. 63% favour something completed.