JEDDAH: A long-awaited draft mortgage law could finally be implemented, according to the Saudi Arabian Monetary Agency’s (SAMA) Governor.
In an interview in Riyadh, Mohammed Al-Jasser said the proposed bill would become law within the next few months.
“It will be a qualitative jump in the way we finance housing in the country and in the way we use financial instruments that are linked to the housing market,” he said.
Since being drafted three years ago, numerous analysts have said that the law is set to revolutionize the Kingdom’s real estate market, triggering a second housing boom once it comes into effect.
Analysts have however expressed concerns that the law would not only bring opportunity but also a flood of applicants whose loans will be on the balance sheets of local banks, in turn raising liquidity issues.
In preparation, Saudi banks have begun cooperating with real estate companies in creating agreements and financial products to offer customers once the law is implemented.
“We will be meeting with Al-Rahji Bank soon on the details of a customer mortgage deal they have developed that we can offer our clients,” said Remax Aziza board member Mohjat A. Bin Yaquob, who is also the company’s head of sales and marketing.
She told Arab News that the upcoming mortgage deal would be a positive endeavor and an affordable step forward for people from any income level to be able to purchase a home.
Economist Said Al-Sheikh has claimed liquidity should not be a problem but instead an opportunity for banks to diversify their balance sheets.
“The proposed law should provide legal recourse for foreclosure and thereby encourage banks to capture the large existing demand for mortgage finance,” he said in the report “NCB Market Review and Outlook, Saudi Macro and Equity Market, Saudi Banks Eyeing the Mortgage Law.”
The report also stated that total bank assets reached $370 billion by November 2009, but with consumer credit accounting for only 14 percent of GDP the new law offers considerable room for growth.
“In our opinion, the timing couldn’t be better for Saudi banks given currently low interest rates, a relatively higher degree of liquidity in local financial markets, improving consumer confidence and rising per capita income levels.
In line with our forecast of gradual economic recovery in 2010 and a rapidly growing youth population greater access to and availability of mortgage financing will likely give a boost to the real estate market,” the report concluded.
Yet some have raised the issue that properties are expensive and will still be out of the price ranges of many, especially those on low and middle level incomes.
“There is already a housing shortage which has inflated real estate prices across the Kingdom,” chief economist at Saudi Banque Fransi John Sfakianakis told Arab News.
“It is just common sense that if prices are already high and the law is passed and an increase of demand is spurred while supply is low, this is only going to cause prices to further increase.”
Sfakianakis added that a major problem is there is no low to middle level housing market in the Kingdom. Since many are already living from paycheck to paycheck, they will not be able to afford a villa or property costing millions of riyals, he said.
When asked how the law would affect the rental market, Sfakianakis said demand would remain high. “Currently Saudi Arabia needs 250,000 homes per year but is only producing around 80,000. With this demand for homes increasing, not many will be able to afford high level properties and will be forced to continue renting.”
He added that he is skeptical of the mortgage law and certainly does not see it as a savior of the real estate market. Nonetheless, real estate companies and local banks are optimistic of the impact the law will have on the market and their business.
“I believe mortgage payments will be paid easily on a monthly basis and fit the client’s salary range,” said Bin Yaquob.
“Although the new system will be different from yearly rental payments and the conventional mortgage system abroad due to the fact that it is Shariah-compliant, it will help people who had no chance for home ownership in the past,” Bin Yaquob said.
She added that there are still many issues that need clarifying such as interest rates versus service charges as well as procedures involving default on payments and repossession.
Bin Yaquob said however that she is confident that SAMA and other authorities will inform them in time to be prepared for the implementation of the bill when it is expected to finally become law within the next few months.
