Why Real Estate Prices Don't Fall Easily: The Scientific Truth Behind Price Stickiness in the Saudi Market 2026

Introduction: Why Does the Elevator Go Up Fast and Come Down Slowly?

Have you ever noticed that real estate prices rise like rockets, but when it's time to decline, they move as if walking through quicksand? This phenomenon is not imagination or a conspiracy by traders, but a documented scientific fact studied by the world's greatest behavioral economists, one of whom won the Nobel Prize because of it.

In this article, we'll take you on a fascinating scientific journey to understand what goes on in a property owner's mind when facing the prospect of selling at a loss. We'll discover together why people refuse to sell even when it's in their best interest, how these behaviors affect the Saudi real estate market, and what the government is doing to break this stagnation and achieve balance.

Get ready for a journey into the depths of the human mind and behavioral economics, backed by scientific studies from Harvard University and MIT, and real numbers from the Saudi market.

First: The Discovery That Changed Our Understanding of Economics

In 1979, two Israeli psychologists dropped a bomb in the world of economics. Daniel Kahneman and Amos Tversky published research in Econometrica that became the most cited in the journal's history. This research established what is now known as "Prospect Theory," and because of it, Kahneman received the Nobel Prize in Economics in 2002.

The core idea is simple yet profound: humans don't make their financial decisions rationally as previously believed. We are emotional creatures, and the pain of loss affects us much more than the joy of equivalent gain.

The Equation That Explains Everything

Kahneman and Tversky discovered that the pain of losing 1,000 SAR psychologically equals the joy of gaining 2,000-2,500 SAR. In other words, loss hurts us two to two and a half times more than equivalent gain makes us happy. This is called "Loss Aversion."

Imagine you bought land for one million riyals, and its market price dropped to 800,000. Your brain doesn't see this as "the current market price," but as "a loss of 200,000 riyals." Since the pain of this loss equals the joy of gaining 400-500 thousand, you will resist selling with all your might, even if waiting is economically illogical.

Second: The Famous Boston Study - Conclusive Evidence

In 2001, researchers David Genesove and Christopher Mayer from Harvard and Wharton published a study that became a global reference for understanding real estate seller behavior. They studied the condominium market in downtown Boston during the 1990s recession, and the results were shocking.

What Did They Discover?

The researchers found that owners facing potential losses behave completely differently from others. Owners who bought their property at a price higher than the current market price raise their asking price by 25-35% above the expected price. They succeed in getting a selling price 3-18% higher than market price. They stay on the market much longer before selling, and sometimes withdraw the property from the market entirely.

Interestingly, this behavior was twice as strong among owner-occupants compared to investors, but it exists in everyone. This means even professional investors cannot escape this psychological bias.

What Does This Mean for the Market?

When prices fall, owners don't accept selling at the new price. They prefer to wait or withdraw the property from the market. This reduces the number of properties offered for sale. Less supply prevents prices from falling further. The result: prices remain "stuck" at levels higher than their real value.

Third: The Endowment Effect - Why Do We Value What We Own Higher?

Besides loss aversion, there's another psychological phenomenon that explains real estate price stickiness: the "Endowment Effect." It was discovered by Richard Thaler, who also won the Nobel Prize in Economics.

The Famous Mug Experiment

In a classic experiment, researchers gave a group of students coffee mugs as gifts, then asked them: How much would you sell the mug for? The average asking price was twice what other students were willing to pay to buy the same mug. Simply owning something for minutes made them value it higher.

How Does This Affect Real Estate?

When you own a home, you don't see it as "a property in the market." You see it as "my home." You remember the memories in it, the improvements you made, the effort you put into choosing it. All this makes you value it higher than its real market value. The potential buyer doesn't see all this; they see "another property in the market" and compare it to available alternatives.

This gap between the owner's valuation and market valuation is a major reason for the slow downward movement of prices.

Fourth: Psychological Anchoring - Prisoner of Purchase Price

There's a third psychological bias playing a pivotal role: "Anchoring Bias." Your brain takes the purchase price as a psychological "anchor" against which it measures everything.

How Does Anchoring Work?

You bought land at 500 SAR per meter. The market price now is 400 SAR. Your brain doesn't think: "The fair price now is 400 SAR." Instead, it thinks: "I'm losing 100 SAR on every meter." The anchor (500 SAR) determines how you interpret reality, even if this anchor is no longer relevant to the current market.

A recent 2022 Italian study confirmed this: homeowners facing potential losses stick to the purchase price and don't adjust their valuation in response to changing market conditions, while those expecting profit are more flexible in pricing.

Fifth: The Situation in the Saudi Market - Numbers Speak

Now that we understand the theory, let's look at Saudi reality. The numbers tell a clear story of how these behaviors affect our local market.

The Rocket Rise

In 2010, the average price per meter for land in Riyadh was 670 SAR. By 2024, it exceeded 5,040 SAR per meter. This means an increase of 6.5 times in less than 14 years. In some neighborhoods like Al-Narjis and Al-Malqa, increases were even sharper.

Why Did Prices Rise So Fast?

Surplus oil liquidity was looking for investment channels, and real estate was the traditional safe haven. Hoarding of white lands created artificial scarcity despite the abundance of actual land. Real estate speculation inflated prices, with the same land being sold dozens of times between the first seller and last buyer. Lack of effective regulatory tools allowed this unjustified inflation.

Why Is Decline Difficult?

All the psychological factors we mentioned work strongly in the Saudi market. The owner who bought at 5,000 SAR per meter refuses to sell at 4,000 SAR, even if that's the current fair price. They prefer to wait years rather than "realize the loss." When everyone does the same, prices remain high despite declining real demand.

Sixth: Government Intervention - Breaking the Stagnation

The Saudi leadership realized that the market won't correct itself automatically due to these psychological barriers. Therefore, a series of smart regulatory interventions came aimed at breaking this stagnation.

Crown Prince's Directives - March 2025

At the end of March 2025, HRH Crown Prince Mohammed bin Salman directed five main actions to achieve balance in the real estate sector. These directives came after land prices exceeded limits at which homeownership targets under Vision 2030 could be achieved.

New White Land Fees System

In April 2025, the Council of Ministers approved amendments to the white land fees system. Fees increased from 2.5% to a maximum of 10% annually of land value. Geographic zones were divided into 5 tiers in Riyadh. The highest priority tier pays 10%, high 7.5%, medium 5%, and low 2.5%. The system expanded to include vacant properties for the first time. The minimum area decreased to 5,000 square meters instead of 10,000.

How Do Fees Break Psychological Stagnation?

Fees change the decision equation for owners. Before fees, holding land was "free" - owners could wait forever at no cost. Now, every year of waiting costs them 2.5-10% of land value. This creates financial pressure pushing owners to decide: either develop or sell. "Waiting" is no longer a free option.

Initial Results

According to General Authority for Statistics data, the real estate price index recorded a 0.7% decline in Q4 2025. The residential sector declined by 0.9%, with residential land prices dropping 0.9% and apartments 1.7%. Eleven administrative regions recorded price decreases. Hail region led declines at 8.7%, followed by Northern Borders at 5.4%, then Qassim at 4.9%.

Seventh: Why Is Correction Slow Despite All This?

Even with all these interventions, correction remains relatively slow. The reason lies in several factors:

Psychological Factors Are Deeply Rooted

Loss aversion and endowment effect are not learned behaviors that can be changed by decision. They're part of our human nature, rooted in our evolution over millions of years. Even with fees, many owners prefer paying fees over "realizing the loss" by selling at a lower price.

Uneven Implementation

Fees are applied gradually according to geographic tiers. Some areas are still outside the implementation scope. This means pressure on owners isn't equal everywhere.

Future Expectations

Many owners bet that prices will rise again with Vision 2030 projects. This expectation makes them cling more to high prices, even if the expectation is unrealistic in some areas.

Limited Alternatives

The owner who sells their land asks: Where do I invest the money? Lack of clear, safe investment alternatives makes some prefer keeping the property despite the fees.

Eighth: International Experiences - What Can We Learn?

Saudi Arabia isn't the first country to face this challenge. Other countries' experiences offer valuable lessons:

Canada - Vancouver

In 2017, Vancouver imposed a tax on vacant properties at 1% of market value, later raising it to 3%. The result: rental units available increased, and rental prices dropped 5-7% in some areas. However, property prices themselves continued rising due to rapid population growth.

Australia - Victoria

Imposed a tax on unused land. The result was similar: increased supply but limited impact on prices in high-demand cities.

The Lesson Learned

Fees and taxes are effective tools for increasing supply and breaking monopolies, but alone they're insufficient to significantly lower prices if real demand is high. Success requires an integrated package of policies.

Ninth: Tips for Buyers and Sellers

For Buyers

Understand that sellers act based on psychological biases, not necessarily market logic. Don't expect sharp, sudden drops; correction will be gradual. Focus on areas where fees are applied at the highest tier, as pressure on owners is greater. Compare asking prices to actual prices of similar transactions, not just listing prices. Negotiate patiently; many owners accept lower prices than they ask after some time.

For Sellers

Admit to yourself that you may be affected by psychological biases. Purchase price has no relation to the property's current value. Ask yourself: If I didn't own this property, would I buy it at this price today? Consult several neutral appraisers; don't rely only on your personal opinion. Calculate the cost of holding the property including fees and opportunity cost. Sometimes selling at a small loss today is better than selling at a big loss tomorrow.

For Investors

Even professionals aren't immune to these biases. Set pre-determined exit rules and stick to them. Don't let emotion drive your investment decisions. Remember the market changes, and clinging to the past may cost you the future.

Tenth: The Future - Where Is the Market Heading?

Short Term (2026-2027)

Gradual price correction is expected to continue, especially in areas subject to the highest fee tiers. White lands will see greater pressure for development or sale. Villas and luxury apartments may see greater decline with reduced demand for luxury units. Remote areas or those with large real estate inventory will be first affected.

Medium Term (2027-2030)

The market will gradually transform from a speculation economy to a real development economy. A new class of homeowners will emerge as renters become owners. The urban expansion map will change from random horizontal sprawl to organized urban planning. Quality of real estate projects will rise with focus on real value.

The Biggest Challenge

The challenge is not just economic, but psychological and cultural. Changing society's view of real estate from "an asset for hoarding and speculation" to "an asset for housing and real use" requires time and effort. But current reforms lay the right foundation for this transformation.

Conclusion: Understanding Behavior Is Key to Understanding the Market

Now you know why real estate prices don't fall easily. Not because there's a conspiracy, but because the human brain is programmed in a way that makes loss very painful, and letting go of what we own very difficult. This scientific fact explains owner behavior everywhere in the world, from Boston to Riyadh.

The good news is that the government is intervening with smart tools like white land fees to break this stagnation. Correction is coming, but it will be gradual, not a sudden collapse. Understanding these dynamics helps you make better decisions, whether you're a buyer, seller, or investor.

Most importantly: be aware of your psychological biases. Even after reading this article, these biases will still affect you. Awareness of them is the first step to overcoming them.

Frequently Asked Questions

Will real estate prices collapse in Saudi Arabia?

Sudden collapse is unlikely due to the psychological factors we explained. What's expected is gradual correction and slowdown in growth, not collapse.

When is the best time to buy?

No one can pinpoint the bottom precisely. If you find a property at a fair price that suits your needs and financial capability, it may be the right time. Waiting for the perfect bottom may cost you good opportunities.

Will white land fees actually lower prices?

Fees will increase supply and reduce speculation, putting pressure on prices. But the impact depends on location and local demand. High-demand areas may see less impact.

Why don't owners sell if prices will fall further?

Because of "loss aversion" and "endowment effect" that we explained. The human brain prefers avoiding certain loss even if it means greater loss later.

Should I sell my property now?

The decision depends on your personal situation. If you need liquidity or have a better investment opportunity, selling may be logical. If you use the property for housing and don't need the money, there may be no need to worry.