RIYADH: Saudi Arabia’s first mortgage law is expected to be implemented this year and its provisions will protect all parties involved, Finance Minister Ibrahim Al-Assaf said yesterday.
“It should be in 2009, definitely,” Al-Assaf told Reuters in an interview. “I agree that it has taken us much longer than we had hoped at the beginning”.
A draft law, which has been in the works for almost a decade, was approved last year by the advisory Shoura Council and is now being examined by the council of ministers, Al-Assaf said.
“If there are no major changes then it should be approved with no further delays. But if there are major changes from ... that which was approved by the Shoura, then it has to go back to the Shoura Council again,” Al-Assaf said.
“Hopefully any changes and adjustments will be minimal and not major,” he added.
Realtors say the percentage of home ownership barely reaches 25 percent, making it the lowest among the oil-driven economies in the Gulf Arab region.
A surge in construction costs, land speculation coupled with a lack of bank financing and poor government assistance have aggravated a housing deficit estimated at some 1 million homes and driven rents higher.
The low home-ownership ratio has for a long time exposed some of the weaknesses of Saudi Arabia’s wealth distribution policies, at least on a regional scale.
Local banks have been looking forward for the mortgage law to be enacted because of the huge business potential that it is set to unlock. Al-Assaf said the law will “protect all players” noting that it also covers eviction procedures in case of payment defaults.
The current global crisis should not have an impact on the approval of the law because the local banking system has been largely immune to the effects of the global crisis, he said.
“We need this law regardless of ... the temporary situation of the financial sector, whether it is in a very healthy situation or in a bad situation,” he said. “It should be good for all times ... It will be a good one even with the current market (conditions),” he added.
Hopes, raised over the past six years by the oil price surge, suffered after a stock market crash in 2006 wiped out savings of tens of thousands and forced many to abandon plans to own a house.
The Saudi property market now fits more with the needs of high-income households than those with middle-income and below, investment bank Rana Investment said in a report in August.
The government already provides an annual SR5 billion to state-owned Real Estate Development Fund which provides housing loans to poorer Saudis.
But industry sources say this hardly covers the growth in demand as population grows at almost 3 percent annually.
Al-Assaf also said Saudi Arabia sees no need to borrow to cover a projected budget deficit this year or any shortfall next year.
He said the kingdom’s vast financial reserves would be its “first line of defense” to meet any deficits, adding public debt had fallen to below 12 percent of gross domestic product from over 100 percent a few years ago. While that had increased the government’s ability to tap debt markets if necessary, Al-Assaf said: “I don’t expect that this year and I don’t expect it next year.”
Saudi Arabia increased budgeted spending for 2009 and, with world oil prices collapsing, projected a SR65 billion ($17.3 billion) deficit, which would be its first since 2002.
The Saudi oil and petrochemical industries have been hit by falling demand as a global recession bites, but Al-Assaf said other sectors of the economy remained vibrant, stimulated by private as well as government investment in huge projects. “Saudi Arabia is one of the few bright spots ... as far as the world economy is concerned,” he said.
Saudi Arabia, the only Arab member of the Group of 20 developed and developing nations, was playing its part in efforts to steer the world out of recession, Al-Assaf said.