Direct land allocation is the latest tool for cooling an overheated residential market.

The Royal Commission for Riyadh City started allocating 10k plots across the capital at a fixed price of SAR 1.5k per sqm. Results of the e-lottery announced last Wednesday saw a total of 6.38 mn sqm of residential plots — at 300 sqm each — allocated to eligible recipients in Riyadh across existing and new districts, including Al Qayrawan, Al Malqa, Al Nakhil, Al Narjis, Numar, Al Rmayah, Al Rimal, and Al Janadriyah.

The program — executed through the Tawazoun platform — has been a “huge success,” Knight Frank Partner and MENA Head of Research Faisal Durrani told EnterpriseAM. “Some families had committed to buying homes off-plan from third-party developers, but they have now changed their mind. Instead, they said, ‘We will buy our own land and build our own home because it's cheaper than buying through a third-party developer.’"

The soft ceiling

This round kicks off a wider five-year plan to allocate up to 40k plots annually — that’s 40k plots taken out of the flipping residential market each year to directly discount “unacceptable” market prices. Beneficiaries are barred from selling, renting, or mortgaging the land for 10 years, and if they don’t build within a specific timeframe, the state takes the land back. The pitch is to encourage development on the allocated land, increasing the supply of residential and commercial units.

Affordability is a big part of the equation. The offered price is less than half of the SAR 3.2k-per-sqm average in the capital, with some districts seeing up to 84% discounts to market rates, according to Aleqtisadiah ’s analysis. The discount effectively sets a soft ceiling on land valuation.

But there’s a cultural element to the program’s success too. “People like to customize their homes as much as possible. And when you're buying it from a developer, your options for customization are relatively limited,” Durrani told us.

Part of a gov’t toolkit

The soaring real estate prices triggered a slew of reforms to cool down the real estate market, including a five-year rent freeze, taxes on white lands, and lifting land freezes in the north of the capital.

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