Call for systematic implementation of the mortgage law in Kingdom

Updated 07 July 2012
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Call for systematic implementation of the mortgage law in Kingdom

The passage of the mortgage law in Saudi Arabia is a much-awaited milestone for the country's real estate and housing markets. The law will pave the way for a broader home ownership and healthier real estate market overall, bringing the Kingdom to a level playing field with other countries and securing the growth and stature of the Saudi market globally.
The possibilities now available in the market are extremely exciting, from a broader choice of financing products to the development of a viable secondary market and more. But the passage of the law will not flip a magic switch that automatically opens floodgates of home financing, turning renters into homeowners. Nor will it secure the rights of borrowers and financers in a single day. Once the dust settles, the Mortgage Law can only deliver on its long-term objective of increasing homeownership through systematic implementation.
The first step in implementation requires the law to be transformed into effective regulations and enforcement mechanisms. Regulations will provide the guidelines, procedures, paperwork and timelines that financiers need to legally provide home finance and, more importantly, to manage the foreclosure process in case of customer default. Regulations must also guarantee consumer protection measures to allow defaulting parties due process and to make sure they are not treated unjustly during enforcement.
Saudi Arabian Monetary Agency (SAMA) is now expected to issue regulations within 90 days of the mortgage law's passage. The Ministry of Finance and the Ministry of Housing will also collaboratively issue policies and procedures for real estate financing which will need to be approved by the Council of Ministers.
A careful balance will be required. Over regulation through impractical standards, stringent oversight and unnecessary procedures can stifle the industry at this early stage. At the same time lax standards can lead to an unstable market with far reaching economic and financial repercussions. The lessons learned from the mortgage system failures in the region and globally over the past few years are the important harbingers for Saudi Arabia. Saudi policy makers must not allow the drive to promote homeownership to undermine regulations that support prudent risk standards and credit underwriting. In many parts of the world, the public policy objective of promoting homeownership eventually trumped the importance of adhering to sound underwriting practices. Policymakers became so focused on increasing homeownership that they failed to create regulations to control the lending practices of financiers preying on customers who did not understand the impact of homeownership on their finances. This is fundamental in Saudi Arabia, where much of the population will need to be educated about the benefits and responsibilities of home ownership as the market develops.
Once regulations are framed, the final test will be how regulators manage the sector and how financiers translate the benefits of the law into better terms and protections for the market. The interplay between public policy and private sector dynamics must be constantly measured to make sure the key stakeholders balance the government's vision of home ownership with corporate profit motives while safeguarding the public interest.
Looking ahead, the mortgage law will no doubt set a strong foundation for a market poised to expand significantly. In the coming phases we are likely to see the emergence of a specialized non-bank real estate finance sector with a variety of differentiated financing products for home purchase, commercial real estate investment, and construction/project finance for developers. The pent up demand for home finance will find relief in the law's effective regulation but it will take time for the system to develop fully. In due time, we will observe financiers creating new financing products and granting construction/project finance more readily. As the real estate and finance sectors interact more frequently under the umbrella of effective regulation, developers will be motivated to invest more in the creation of much needed supply for the market. All of this will culminate in more choice and increased ability for the homebuyer, which is the ultimate goal of the Saudi mortgage law.
— Courtesy: Capitas Group International
(www.capitasgroupintl.com)


US says conserving oil is no longer an economic imperative

Updated 46 min 50 sec ago
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US says conserving oil is no longer an economic imperative

  • Fears of oil scarcity no longer driver of US energy policy
  • Surging shale production brings energy abundance

WASHINGTON: Conserving oil is no longer an economic imperative for the US, the Trump administration declares in a major new policy statement that threatens to undermine decades of government campaigns for gas-thrifty cars and other conservation programs.
The position was outlined in a memo released last month in support of the administration’s proposal to relax fuel mileage standards. The government released the memo online this month without fanfare.
Growth of natural gas and other alternatives to petroleum has reduced the need for imported oil, which “in turn affects the need of the nation to conserve energy,” the Energy Department said. It also cites the now decade-old fracking revolution that has unlocked US shale oil reserves, giving “the United States more flexibility than in the past to use our oil resources with less concern.”
With the memo, the administration is formally challenging old justifications for conservation — even congressionally prescribed ones, as with the mileage standards. The memo made no mention of climate change. Transportation is the single largest source of climate-changing emissions.
President Donald Trump has questioned the existence of climate change, embraced the notion of “energy dominance” as a national goal, and called for easing what he calls burdensome regulation of oil, gas and coal, including repealing the Obama Clean Power Plan.
Despite the increased oil supplies, the administration continues to believe in the need to “use energy wisely,” the Energy Department said, without elaboration. Department spokesmen did not respond Friday to questions about that statement.
Reaction was quick.
“It’s like saying, ‘I’m a big old fat guy, and food prices have dropped — it’s time to start eating again,’” said Tom Kloza, longtime oil analyst with the Maryland-based Oil Price Information Service.
“If you look at it from the other end, if you do believe that fossil fuels do some sort of damage to the atmosphere ... you come up with a different viewpoint,” Kloza said. “There’s a downside to living large.”
Climate change is a “clear and present and increasing danger,” said Sean Donahue, a lawyer for the Environmental Defense Fund.
In a big way, the Energy Department statement just acknowledges the world’s vastly changed reality when it comes to oil.
Just 10 years ago, in summer 2008, oil prices were peaking at $147 a barrel and pummeling the global economy. OPEC was enjoying a massive transfer of wealth, from countries dependent on imported oil. Prices now are about $65.
Today, the US is vying with Russia for the title of top world oil producer. US oil production hit an all-time high this summer, aided by the technological leaps of horizontal drilling and hydraulic fracturing.
How much the US economy is hooked up to the gas pump, and vice versa, plays into any number of policy considerations, not just economic or environmental ones, but military and geopolitical ones, said John Graham, a former official in the George W. Bush administration, now dean of the School of Public and Environmental Affairs at Indiana University.
“Our ability to play that role as a leader in the world is stronger when we are the strongest producer of oil and gas,” Graham said. “But there are still reasons to want to reduce the amount we consume.”
Current administration proposals include one that would freeze mileage standards for cars and light trucks after 2020, instead of continuing to make them tougher.
The proposal eventually would increase US oil consumption by 500,000 barrels a day, the administration says. While Trump officials say the freeze would improve highway safety, documents released this month showed senior Environmental Protection Agency staffers calculate the administration’s move would actually increase highway deaths.
“American businesses, consumers and our environment are all the losers under his plan,” said Sen. Tom Carper, a Delaware Democrat. “The only clear winner is the oil industry. It’s not hard to see whose side President Trump is on.”
Administration support has been tepid to null on some other long-running government programs for alternatives to gas-powered cars.
Bill Wehrum, assistant administration of the EPA’s Office of Air and Radiation, spoke dismissively of electric cars — a young industry supported financially by the federal government and many states — this month in a call with reporters announcing the mileage freeze proposal.
“People just don’t want to buy them,” the EPA official said.
Oil and gas interests are campaigning for changes in government conservation efforts on mileage standards, biofuels and electric cars.
In June, for instance, the American Petroleum Institute and other industries wrote eight governors, promoting the dominance of the internal-combustion engine and questioning their states’ incentives to consumers for electric cars.
Surging US and gas production has brought on “energy security and abundance,” Frank Macchiarola, a group director of the American Petroleum Institute trade association, told reporters this week, in a telephone call dedicated to urging scrapping or overhauling of one US program for biofuels.
Fears of oil scarcity used to be a driver of US energy policy, Macchiarola said.
Thanks partly to increased production, “that pillar has really been rendered essentially moot,” he said.