Why Don't Real Estate Prices Fall Despite Increased Supply? A Comprehensive Analysis of the Saudi Market 2026

Introduction: The Paradox That Puzzles Everyone

A question echoing in every real estate forum and gathering: Why don't real estate prices fall despite everyone talking about increased supply? Simple economic logic says that increased supply leads to lower prices, but reality in the Saudi real estate market tells a different and complex story.

In this comprehensive analysis, we will dive deep into this phenomenon from all angles: economic, social, psychological, and regulatory. We will understand why supply and demand laws don't work as expected in the real estate market, what's actually happening behind the scenes, and whether there's light at the end of the tunnel.

First: Real Demand is Bigger Than You Think

Before we discuss why prices don't fall, we must understand the actual demand for housing in the Kingdom. The numbers are both amazing and concerning.

Accelerating Population Growth

Projections indicate that Riyadh's population alone will rise from 7 million to 9.6 million by 2030, with a compound annual growth rate of 4.1%. This means 2.6 million additional people in one city within a few years. Nationwide, annual population growth exceeds 3.3%, one of the highest rates in the region.

Actual Housing Need

According to Knight Frank reports, Riyadh alone will need 305,000 new residential units between 2024 and 2034 to house Saudi citizens only. Add to that the needs of expatriates who make up more than 52% of the capital's population. Nationwide, estimates indicate the need to build 115,000 residential units annually to meet growing demand.

Internal and External Migration

Riyadh attracts successive waves of migration: citizens moving from small cities seeking job opportunities, global companies relocating their regional headquarters to the Kingdom in response to localization decisions, and qualified foreign talent coming to work on mega projects. All this creates continuous and escalating demand.

Second: The White Lands Problem and Hoarding

Here we reach the core of the problem. Supply exists on paper, but it's held by a few large owners who prefer waiting over selling.

What are White Lands?

White lands are undeveloped vacant lands within urban boundaries. These lands are served by infrastructure including electricity, water, and roads, but their owners leave them without development or sale, waiting for prices to rise. This hoarding creates artificial scarcity in the market despite vast available spaces.

Scale of the Problem

White lands in Riyadh alone are estimated at millions of square meters. Some owners have held lands for decades with no intention to develop or sell, as if using them as real estate savings accounts. This asset freezing deprives the market of real supply that could have balanced increasing demand.

Why Do Owners Prefer Holding Their Land?

The reason is simple: real estate in Saudi investment culture is considered the safe haven. No taxes on holding land (until recently), and value rises over time without any effort. Why would an owner sell today for one million if they believe it will become two million in five years? This thinking, while logical for the individual, destroys market balance for society.

White Land Fees: The Government Solution

The government recognized the seriousness of this problem since 2016 and imposed fees on white lands at 2.5% of their value annually. But implementation was limited and impact weak. In 2025, radical transformation came: raising fee rates to 10% in highest priority areas, 7.5% for high, 5% for medium. Fees also included vacant properties for the first time, not just vacant land. The Ministry of Housing issued 60,000 fee invoices in Riyadh alone, in the widest application of the system since its establishment.

Third: Rising Construction Costs

Even if land prices fell, construction costs themselves form a major barrier to final property price reductions.

Building Material Prices

Steel prices in Saudi Arabia range between 2,600 and 3,500 riyals per ton depending on type and quality. Cement and concrete prices have seen successive increases. Finishing materials from marble, porcelain, sanitary ware, and electrical have all risen. Currie & Brown consultancy report expects an additional 7% increase in construction costs due to the massive construction boom in the Kingdom.

Reasons for Rising Construction Costs

The Russia-Ukraine war affected global supply chains for building materials. Huge local demand for building materials due to mega projects exceeds supply capacity. Rising wages for skilled labor amid competition for qualified personnel. Global shipping and transport costs haven't returned to pre-pandemic levels.

The Difficult Equation

If construction cost per square meter is 2,500 riyals, and land price per meter is 3,000 riyals, total cost before any developer profit is 5,500 riyals. How can the final price decrease? The developer needs a profit margin, the bank needs its interest, and the broker needs commission. The equation doesn't allow significant reduction unless all inputs decrease.

Fourth: Sticky Prices Theory

This economic theory explains a large part of the puzzle. Prices in real markets don't behave as economics textbooks say.

What is Price Stickiness?

Price stickiness refers to prices' tendency to remain stable or decrease very slowly even when supply and demand conditions change. Simply put: prices rise easily but refuse to come down. This phenomenon is scientifically documented and recognized in Keynesian and post-Keynesian economic theory.

Why Do Sellers Hold to Their Prices?

Psychologically, a seller who bought land for one million riyals refuses to sell it for 900,000 even if the market says so. This is what behavioral economists call "loss aversion." The psychological pain of loss is much greater than the pleasure of equivalent gain. Sellers prefer waiting years over selling at an apparent loss, even if waiting costs them alternative opportunities.

Impact of Peak Prices

When a property owner sees their neighbor sold at a certain price at market peak, that price becomes their mental reference. Even if two years pass and the market changes, they still compare to that peak and refuse to sell for less. This creates a gap between offered prices and prices buyers accept, leading to transaction stagnation, not price reduction.

Role of Speculators

Speculators who bought at high prices cannot sell at a loss because that might mean bankruptcy or huge loss. So they prefer holding the property and renting it or even leaving it empty rather than selling at a loss. This reduces actual supply available for sale in the market.

Fifth: Impact of Vision 2030 and Major Projects

Vision 2030 is both a blessing and a curse for the real estate market. It creates huge opportunities but also feeds expectations of rising prices.

Mega Projects

NEOM, The Line, Red Sea, Qiddiya, New Murabba, Roshn, Diriyah Gate... These projects worth hundreds of billions create massive demand for real estate, land, labor, and building materials. Every announced project raises expectations and pushes owners to raise their prices anticipating the future.

Upcoming Global Events

Hosting Expo 2030 in Riyadh and World Cup 2034 means additional investments of hundreds of billions in infrastructure, hotels, and facilities. These events feed expectations of rising prices and make owners more attached to their properties waiting for the expected boom.

Company Headquarters Relocation

The decision requiring regional headquarters in Saudi Arabia for companies wanting to deal with the government brought a wave of global companies to Riyadh. These companies need offices and housing for their employees, significantly increasing demand especially for luxury and upper-middle properties.

Sixth: Qualitative Gap Between Supply and Demand

Here's a crucial point many overlook: not all supply meets demand. There's a huge qualitative and geographical gap.

Supply in the Wrong Place

Many new projects are built on distant city outskirts, while real demand is for serviced areas close to work centers and services. Someone working in central Riyadh won't accept living in a suburb 45 minutes away even if the price is much lower. This creates surplus in some areas and shortage in others.

Supply with Wrong Specifications

The market offers luxury villas for millions of riyals, while the greatest demand is for medium-sized and priced apartments and units suitable for young families and middle-income earners. This imbalance in supply type makes prices high in demanded categories and low in unwanted categories.

Construction and Design Quality

Much of the old supply doesn't meet the new generation's aspirations in terms of design, finishing, and services. Today's buyer wants high specifications and integrated residential communities, not just walls and a roof. This concentrates demand on modern projects with high specifications, raising their prices.

Seventh: Interest Rates and Real Estate Financing

The relationship between interest rates and real estate prices is complex and not as many expect.

Current Situation

Interest rates on real estate financing in Saudi banks currently range between approximately 3% and 5% depending on the bank and financing type. These rates have decreased from their peak in 2023 but remain higher than 2021 levels.

Contradictory Impact

Logic says that rising interest should lower real estate prices because buyers can borrow less. But what actually happened is different: rising interest reduced the number of buyers able to purchase, but didn't force sellers to lower their prices. The result: decrease in transaction numbers, not prices. Sellers prefer waiting over losing.

Mortgage Loans

Total individual mortgage loans in Saudi Arabia exceeded 600 billion riyals in 2023 compared to 200 billion in 2019. This huge growth in financing pumped significant liquidity into the real estate market, supporting prices and preventing them from falling even during demand slowdown.

Eighth: 2025 Government Interventions and Their Effects

In 2025, the Saudi government took unprecedented decisions to address real estate market imbalances, especially in Riyadh.

Crown Prince's Directives

In September 2025, HRH Crown Prince Mohammed bin Salman directed urgent measures to achieve balance in the real estate market. These directives came based on a study prepared by the Royal Commission for Riyadh City in coordination with the Council of Economic and Development Affairs.

Real Estate Balance Platform

The Real Estate Balance Platform was launched to provide 10 to 40 thousand developed residential plots annually for 5 years, with a price ceiling not exceeding 1,500 riyals per square meter in strategic neighborhoods such as Al Malqa, Al Qairawan, Al Narjis, and Al Nakheel. The platform witnessed huge citizen turnout.

Lifting Suspension on Lands

Suspension was lifted on 81.5 square kilometers of land north of Riyadh, pumping massive spaces into the market. This decision alone changed calculations for many speculators who were betting on land scarcity.

Rent Freeze

The decision to freeze rent increases in Riyadh for 5 years removed a major incentive for speculation. Those who bought property intending to rent at escalating rents now have different calculations.

Initial Results

Price decreases began appearing in some neighborhoods ranging between 8% and 31%. Al-Uraija Al-Gharbi recorded a 55% decrease, Ghubairah 54%, and Al-Yarmouk 50%. But these decreases are not comprehensive, rather concentrated in specific areas that were already inflated due to speculation.

Ninth: What Do We Expect for the Future?

Based on current data, we can draw scenarios for the near and medium future.

First Scenario: Gradual Correction

This is the most likely scenario. With continued land injection, fee implementation, and rent freeze, prices will gradually decrease in inflated areas, while stabilizing or slightly increasing in serviced areas and quality projects. Expectations for 2026 indicate limited growth between 2-5% in good projects, and stability or slight decrease in saturated areas.

Second Scenario: Long-term Stability

Prices may enter a long stability phase without noticeable increase or decrease. This happens when supply roughly balances with demand, speculators lose incentive to enter, and pricing becomes more realistic based on real value rather than expectations.

Third Scenario: Limited Sharp Decline

Some areas that witnessed violent speculation may see sharp declines, especially raw land on outskirts and incomplete projects. But this decline will be geographically limited and not comprehensive to the market.

Factors That May Change the Equation

Any changes in global interest rates will affect real estate financing. Success or setback of major projects will affect expectations. Any global economic crises may cool demand. New unexpected policies may accelerate or slow correction.

Tenth: Tips for Buyers and Investors

For End Buyers (Housing)

If you're looking for housing for your family, don't wait for a price collapse that likely won't come. Focus on your actual needs: location, area, quality. Benefit from housing support programs and the Real Estate Balance Platform. Compare mortgage financing from several banks. Don't buy in distant areas just because the price is lower.

For Investors

Avoid speculation on raw land, as new fees will eat your profits. Focus on income-generating properties in serviced locations. Ready residential projects are better than undeveloped land. Geographic diversification of your real estate portfolio reduces risks. Watch government urban expansion areas as they're the real opportunities.

For Those Wanting to Sell

If you own a property and want to sell, be realistic in your pricing. The market won't return to peak prices soon. Watch actual transaction prices, not listings. Use a certified appraiser to determine fair price. Flexibility in negotiation is better than long waiting.

Frequently Asked Questions

Will real estate prices collapse in Saudi Arabia?

A comprehensive collapse is unlikely due to strong real demand, population growth, and major projects. But corrections in specific areas are very likely, especially areas that witnessed speculation.

What's the best time to buy?

If you find a property suitable for your needs at a reasonable price and can finance it, buy it. Trying to time the market usually fails. What matters more is property quality and suitability for you.

Is the Real Estate Balance Platform a real opportunity?

Yes, the platform offers lands at prices much lower than market. But there are conditions: no disposal for 10 years, and building within a specified period. If your intention is actually housing, it's an excellent opportunity.

Is renting better than buying currently?

It depends on your financial situation and future plans. With rent freeze in Riyadh, renting has become a more stable option. But buying builds an asset for you in the long term. Calculate the total cost of each option and decide.

Are new areas a good investment?

Areas supported by huge government projects and integrated infrastructure may be good opportunities. But beware of distant areas lacking services, as they may remain stagnant for years.

Conclusion

Real estate prices don't fall as easily as simple supply and demand laws expect. The real estate market is complex and interconnected, controlled by economic, psychological, social, and regulatory factors. Real demand in Saudi Arabia is huge due to population growth and Vision 2030. Hoarding and speculation have distorted the market for years. High costs prevent price drops even if demand decreases. Recent government interventions have begun gradually restoring balance.

The future holds cautious optimism: gradual correction in inflated areas, stability in good areas, and real opportunities for smart searchers. Most importantly, understand the market well before any buying or selling decision, and be realistic in your expectations.