The proposed revision of mortgage lending in Saudi Arabia is expected to spark renewed interest in the residential sector, according to an expert.
“If the proposed revisions to mortgage lending take hold, the impact on the residential market could be significant – encouraging home ownership and boosting residential development in Saudi Arabia,” said Nick MacLean, managing director of CB Richard Ellis (CBRE) Middle East, a leading global real estate adviser.
“Considerable growth in the country’s population over the past few decades has caused mounting pressure on the supply of housing stock in the market, so any change that will increase the amount of capital flowing into the residential sector should support an increase in development activity.
” “Strict adherence to Sharia law has historically limited home ownership to equity buyers. The proposed reforms would introduce Sharia-compliant mortgages that would open up the housing market to a much wider proportion of the population and increase bank capital flowing into the residential sector,” MacLean continued. “Although this is by no means a new initiative, the recent political upheaval in neighbouring Bahrain and elsewhere in Mena, has provided additional stimulus for addressing change in the Kingdom. The review of mortgage lending comes amid other initiatives, including the establishment of a social fund worth $38 billion.
While the mortgage laws still require final approval by King Abdullah, the approval of the changes by the Shura council is a significant step towards the goal of improving liquidity in the mortgage market,” MacLean noted. “If Saudi nationals take advantage of the proposed changes to the banking system it will provide residential developers from both the Kingdom and other GCC countries with a renewed case for entering the market,” he opined. “However, even if the bill is given final approval in the near future, banks will still need to put in place procedural changes, such as due diligence, before the legislation would impact the market,” Maclean concluded.
