The new mortgage law: Is it the answer to our prayers?
The new mortgage law is the talk of the Kingdom these days. Once announced, especially with the overall overwhelmingly, positive coverage it became the ultimate answer to citizens’ home owning dreams. Now that a few days have passed since its announcement, it is time to scrutinize it under a different light.
First things first, it is a financial law not a real estate regulatory one. It addresses the financial part of the process of owning a home. It has nothing whatsoever to do with regulating the real estate market itself. Not that the law will not have any effect on the market. It will, but it deals with only one component of the whole real estate market.
Imagine it this way: The real estate market is the big picture, while the mortgage law is only one detail. Interestingly, the big picture itself does not seem to have any law regulating it. It is flooded with colors, themes, and random brush strokes, yet no one seems to know who the artist is. The question is, which government body is regulating or looking after the real estate market in Saudi? My answer is: I do not know, but I think no one is. It is the market with almost zero risk. The prices are always on the rise, steady at times, often crazy and no matter what the prices are always skyrocketing. For that, I am not sure how this mortgage law will change anything in Saudi Arabia’s unpredictable and unregulated real estate market.
Let’s examine the statements that accompanied the announcement that the law will eventually control prices in the market. The mortgage law in theory minimizes the risk undertaken by lenders because mortgaged houses ensure that their money is safe.
In return, that should encourage financial institutions to lend more with less interest rates. So the expected result should be more individuals wanting to buy homes because of the low rates. And here arises one of the major fears of applying this system to the Saudi market.
Since the market has no regulations to control it to begin with, it is feared a huge demand will be created with not enough supply that will end up causing another price boom.
The conclusion is that the mortgage law is neither good nor bad in itself. It is not the ultimate answer, nor it is the devil in disguise. The fact of the matter is it must work within a completely integrated system to be fruitful. Like many others, I tend to believe the Saudi real estate market needs a serious shakeup to its core.
It needs a series of laws and guidelines that would explain, unbelievable rises in property prices. The market needs to be recovered from the greedy hands of landlords and investors and organized so that both the customers and investors’ rights are protected. In the meantime, we can only wait and see how the mortgage law will be implemented and how it will perform once in action.
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