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)


INTERVIEW: Sotheby’s boss sees Saudi Arabia as important supplier and buyer in auction room

Updated 1 min 18 sec ago
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INTERVIEW: Sotheby’s boss sees Saudi Arabia as important supplier and buyer in auction room

HOUSTON: When Tad Smith and I spoke early last week, we had one overriding thing in common: jet lag.
I was one day into an ordeal that, on past experience of West-East long-haul air travel, would last at least a week.
The 53-year-old chief executive officer of Sotheby’s, the international auction house, was midway through his torment, with the major part of a round-the-world tour of the firm’s main offices still ahead of him. “It’s a crazy week,” he said. I fuzzily concurred.
Smith’s week had begun by ringing the bell at the New York Stock Exchange, where Sotheby’s is the oldest listed company, to celebrate its 275th anniversary. Sotheby’s is older than the US, and older still than the UK, which it predates by 57 years. That is some legacy.
The thrust of recent strategy, however, has been toward the East, the next stop on Smith’s world tour. Just a few weeks ago, the firm reported better-than-expected earnings figures for 2018, boosted by $1 billion in sales from its Hong Kong hub — the best performance since it started in Asia 45 years ago.
It was achieved against some tricky macro-economic headwinds. “In the middle of the year the Chinese stock market softened a bit, and throughout the year expectation for Chinese growth softened,” Smith said.
There was also the growing threat throughout the year of a looming trade war between the US and China, and the risk that Sotheby’s might fall victim to anti-American sentiment on the part of Chinese buyers. So do Chinese customers perceive Sotheby’s as an American organization?
“I think they perceive us as a global company based in the US. We have literally centuries of British roots, so in so far as they think of it at all they also might think we’re in Britain,” he said.
Of course, Sotheby’s is offering Asia something more refined than soya beans or oil-rig equipment, which have become bargaining pieces in the trade war negotiations. Old masters, luxury jewelry and watches, and fine wines — $100 million worth of it last year — are its stock-in-trade. Up-market real estate and vintage motor cars are handled through franchise operations that use the Sotheby’s brand, or through partnerships.
Smith explained the dynamic of the luxury auction business. “We’re encouraging people to provide us things that we then sell. We have both the need to get supply in, so we can fill our sales rooms, and the need to get demand in, so we can sell our items,” he said.
Several factors determine that balance between supply and demand, such as the number of estates that become available, financial pressures on asset-rich people, and — sometimes — family feuds. But the most important factor, “the crucial marginal growth driver,” he said, was “discretion.”
“If people are feeling their things will sell at acceptable prices, they’re more likely to sell and our sales will get larger. Anything that affects the psychology and dampens or conversely strengthens a prospective seller’s confidence that something will sell, will affect our business. If people don’t think trade wars or anything like that will affect them, they won’t sell,” he said.
Smith was in Dubai, at the firm’s offices in the swanky art hub, the Gate Village in the financial center, to spread the 275th birthday cheer and to prepare for an auction of rare watches this week. A previous sale of precious time-pieces attracted $2.6 million of sales.
“The Middle East is a very important part of what we do. When I came in four years ago as CEO we began the effort to invest in a permanent office in the UAE. We thought that having a very senior and more invested presence here would be important for our business, and we’re thrilled with the result. So, yes, the Middle East, all the way across the GCC countries, is very important for us,” he explained.
Saudi Arabia will continue to be an important part of that strategy, both in terms of supplying works for sale and as a plentiful source of buyers.
“Saudi Arabia has a rich archaeological, architectural and cultural history, and — with the establishment of MISK and the Al-Ula project — it is clear there is a keen focus, both on preserving that history, and on developing the artistic scene there. This kind of focus naturally means there is an interest in the range of works and services, including educational initiatives, that we offer,” he said.
Are customers in the Middle East vendors or purchasers? “On balance, the Middle East is a significant provider of great objects to sell, but the most attractive portion of it for us is their buying. Mideast is a net purchaser, and that reflects their obvious wealth and financial importance,” he said.
What are people in the region buying? “Well, how about a spectacular Rembrandt for the Louvre in Abu Dhabi,” he said, in reference to the work “Study of the head and clasped hands of a young man as Christ in prayer” by the Dutch master bought at Sotheby’s London for £10 million ($13 million) last year and recently unveiled at the UAE capital’s new center of culture.
“They are buying beautiful art from all parts of the world. They’re buying amazing, dazzling watches, they’re buying incredible jewelry, with a really robust aesthetic and great taste. People with better taste than mine say they have great taste,” Smith said.
The region also increasingly supplies the rest of the Sotheby’s network with art works from its rich cultural tradition. “We have a huge demand from our clients to buy modern Islamic and modern contemporary Arabic and Iranian art. In the past four years we sold over $125 million worth of Islamic and Middle Eastern art to clients from all over the world. That’s what’s interesting about the Middle East sales — it attracts clients globally. It’s a big market for us,” he said.
It is also a rapidly changing global market place. The traditional image of an art sales room — a posh man with a gavel declaiming incomprehensibly in a smoke-filled baroque salon — is all in the past. “For one thing, it’s not necessarily a man, it can often be a woman,” said Smith, before outlining the rapid technological changes overtaking the art auctions business in the digital age.
“Last year 37 percent of things sold worldwide were sold online. It was an important year. More lots we’re purchased online than by any other method, either in the room or on the phone.
It was the first time in the company’s nearly three centuries of history. It’s grown gangbusters,” he said.
Sotheby’s has already tested a new time-based bidding system, along the same principle as used by eBay, which could soon lead to an all-electronic auction system. “That is a gigantic leap forward where you have electronic buying and electronic consignments. You can take your phone, fill an electronic form on our website and you can consign things that way too. Electronic consignments and sales will be a rapidly growing proportion of our business in the coming years,” he said.
Smith’s background is in keeping with the task of introducing 21st-century techniques to a business with 18th-century origins. A McKinsey alumni, he was an executive with various companies in the entertainment, leisure and information businesses, before joining the Madison Square Garden Company, the group that runs the iconic New York entertainment venue and other sports and leisure operations.
As with the rest of the companies that Smith has worked for, Sotheby’s is entering the digital age in a hurry. “Each of them has a certain creative part of the business that is attached to another part that is a selling organization and the support services for that, and crucially all of them are increasingly dependent on digital marketing technologies,” he said, like a true digital executive.
But the job with Sotheby’s appears to mean more to him than just another bit of Internet-age experimentation. “This really isn’t work, it’s a gift to be in an organization with these talented people and these beautiful objects and the ability constantly to learn. For the past four years I’ve had the opportunity to learn more about art and collectibles and jewelry and watches, and to see all parts of the world,” he said.
The only frustration of the role? He thought for a brief moment. “Jet lag,” he answered.