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Rise of Interests Predicts Further Decline in Real Estate Financing in Saudi Arabia

 The decline in real estate financing is likely to increase the supply of real estate products in the Kingdom. (Asharq Al-Awsat)
 The decline in real estate financing is likely to increase the supply of real estate products in the Kingdom. (Asharq Al-Awsat)
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Rise of Interests Predicts Further Decline in Real Estate Financing in Saudi Arabia

 The decline in real estate financing is likely to increase the supply of real estate products in the Kingdom. (Asharq Al-Awsat)
 The decline in real estate financing is likely to increase the supply of real estate products in the Kingdom. (Asharq Al-Awsat)

Real estate financing sector for individuals in the Kingdom is expected to witness a further decline, following a decision by the Saudi Central Bank (SAMA) to raise the rates of Repurchase Agreement (Repo) and the Reverse Repurchase Agreement (Reverse Repo) by 25 basis points each.

The volume of real estate financing for individuals in Saudi Arabia recorded a decline during the second quarter of 2023, reaching SAR 16.9 billion ($4.5 billion), compared to SAR 22.7 billion ($6 billion) in the first quarter of the year.

One of the main reasons for this decline is the high interest rate and its impact on borrowing costs, which in turn will be reflected in sales and thus lead to a drop in residential real estate prices.

The head of Amaken International Group, economist Khaled Al-Jasser, told Asharq Al-Awsat that raising the interest rate would affect the financial market, as investors would prefer to withdraw their liquidity and deposit it in banks or valuable assets, thus preserve the value of the purchasing capital, or at least its stability.

He added that SAMA’s decision to raise the interest rate reflected the consistency of financial goals in maintaining monetary and financial stability. He explained that the new move would curb the inflation.

Last month, the Saudi Central Bank decided to raise the rate of Repurchase Agreement (Repo) by 25 basis points to 6.00 percent, and the rate of Reverse Repurchase Agreement (Reverse Repo) by 25 basis points to 5.50 percent. These decisions come in line with SAMA’s endeavor to preserve monetary stability.

For his part, economic expert Ahmed Al-Jubeir told Asharq Al-Awsat that SAMA’s decision would lead to a further decline in the volume of real estate financing for individuals during the next stage, which would affect real estate prices in the Kingdom. He added that the governmental reforms were aimed at containing the inflation rate.

Real estate and personal finance consultant and expert, Suhail Asiri, explained that the decline in the demand for real estate financing was due to expectations for a drop in prices.

“The Saudi Central Bank report reveals that the financing companies sector in the Kingdom has grown by 10.8 percent over the past year,” he told Asharq Al-Awsat.

Asiri added: “The report shows an increase in total assets by 6.5 percent to reach SAR 57 billion ($15.2 billion), and an increase in the total financing portfolio by 10.8 percent to SAR 75.45 billion ($20.1 billion), while financing granted to the individual sector constituted the largest part of the net financing portfolio.”

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Saudi Arabia's Digital Advertising Boom: Addressing Economic Leakage, Boosting Local Content

A digital advertising event recently held in Riyadh (Asharq Al-Awsat)
A digital advertising event recently held in Riyadh (Asharq Al-Awsat)
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Saudi Arabia's Digital Advertising Boom: Addressing Economic Leakage, Boosting Local Content

A digital advertising event recently held in Riyadh (Asharq Al-Awsat)
A digital advertising event recently held in Riyadh (Asharq Al-Awsat)

Saudi Arabia’s digital advertising sector is experiencing rapid growth, but a significant portion of its revenues is leaking to foreign platforms. To maximize the impact on the national economy, experts are calling for strategies to curb this outflow and redirect it to local channels.

The importance of retaining digital ad revenues lies in the substantial size of this market. It is estimated that approximately $1 billion in ad spent is lost annually to foreign platforms, representing a considerable loss to Saudi Arabia’s economy.

Dr. Ebada Al-Abbad, CEO of Marketing and Communications at Tadafuq, a Saudi digital advertising network, told Asharq Al-Awsat that the problem stems from the fact that although advertisers, products, and audiences are often local, the largest share of financial gains goes to foreign platforms. He estimated that 70-80% of the $1.5 billion spent on digital advertising in Saudi Arabia in 2022 went to global platforms such as Google and Facebook. This results in the national economy losing nearly $1 billion annually from this sector alone.

Al-Abbad noted that government agencies in Saudi Arabia also contribute to the outflow. He explained that public sector spending on digital advertising, intended to raise awareness among citizens and residents, frequently ends up on foreign platforms. Government spending makes up about 20-25% of the total digital ad market in the Kingdom, meaning hundreds of millions of riyals leave the country annually, weakening the local digital economy.

Al-Abbad argues that Saudi Arabia needs strong local digital ad networks to keep this revenue within the national economy. These networks would help create jobs, drive innovation, and promote cultural diversity in digital content. Developing local platforms would also enhance Saudi Arabia’s digital sovereignty by ensuring that data remains within the country and is not controlled by foreign entities.

Moreover, local networks would reduce dependence on international platforms, ensuring that the economic benefits of digital advertising remain in the Kingdom, he said, stressing that this would align with Saudi Arabia’s broader Vision 2030 goals, which emphasize building a robust, diversified economy driven by local industries and digital transformation.

Globally, the digital advertising sector is growing rapidly. In 2022, worldwide spending on digital ads reached $602 billion, and it is projected to hit $876 billion by 2026. In the Middle East and North Africa (MENA) region, the digital ad market grew to $5.9 billion in 2022, with Saudi Arabia’s market accounting for over $1.5 billion.

In other countries, the digital ad sector plays a crucial role in boosting national economies. For example, in the United States, the digital advertising industry contributed $460 billion to the GDP in 2021, about 2.1% of the total. In the UK, the sector accounted for 1.8% of GDP in 2022. This shows how important digital advertising can be in driving economic growth.

One of the key challenges facing Saudi Arabia’s digital ad sector is the dominance of global platforms like Google and Facebook, which control 60% of the global digital ad market, Al-Abbad told Asharq Al-Awsat. This dominance results in a significant outflow of revenue and allows these platforms to control digital data and content. He warned that this could undermine Saudi Arabia’s national sovereignty over its digital economy.

To counter this, he emphasized that Saudi Arabia needs to build competitive local networks that can retain a larger share of the market. This will not only keep more revenue in the country but also strengthen the Kingdom’s control over its digital data and content.