The Mortgage Market in Saudi Arabia: Current Situation, Government Role and Future Prospects

1. The Mortgage Market in Saudi Arabia

The current situation:

The mortgage market in Saudi Arabia is still in its infancy and many believe that it has a long way to go before it can be considered as developed. According to a report by JLL, the value of residential mortgages in Saudi Arabia stood at SAR48 billion (US$12.9 billion) at the end of 2015, which represented a miniscule share of just 1.6% of the country’s GDP. The lack of development in the mortgage market is partly attributed to theconservatism of Saudis when it comes to borrowing money and also due to the fact that there has been no real need for mortgages up until now as most people have had the cash available to buy their homes outright.

The role of the government:

The government has played a vital role in the development of the mortgage market in Saudi Arabia and has taken several measures to create an environment that is conducive to growth. In 2005, the Saudi Arabian Monetary Agency (SAMA) issued regulations that allowed banks to offer mortgage products for the first time and this was followed by the launch of the Real Estate Development Fund (REDF) in 2006, which provided financing for first-time buyers. In 2011, SAMA made further changes to the regulations governing mortgages and raised the maximum loan-to-value (LTV) ratio from 70% to 80%. The government has also put in place a number of initiatives such as ‘Saudi Home’, which aims to help citizens achieve their homeownership goals, and ‘Saudi Housing Finance’, which offers competitive financing products for homebuyers.

The future of the mortgage market:

There is no doubt that the mortgage market in Saudi Arabia has great potential for growth. The country’s population is projected to reach 34 million by 2030 and this, coupled with economic growth and an increase in household incomes, is expected to lead to higher demand for housing. The government’s ongoing efforts to develop the sector are also likely to result in more Saudis opting for mortgages as a means of financing their homes. Currently, only around 15% of Saudi households have access to mortgages but this is expected to rise to 30-35% over the next decade. This would result in a significant increase in the value of outstanding residential mortgages, which is forecast to reach SAR1 trillion (US$266 billion) by 2025.

2. The Real Estate Laws in Saudi Arabia

The current situation:

The real estate laws in Saudi Arabia are relatively new and were only introduced in 2006 with the aim of regulating the sector and providing greater protection for investors. However, these laws are not well understood by most Saudis and there is still a lot of confusion about what is allowed and what is not. For example, foreigners are not permitted to own property in Saudi Arabia but they are allowed to lease it for up to 99 years. These laws have been criticized by some who believe that they are too restrictive and do not allow for enough foreign investment into the sector.

The role of the government:

The government has played a major role in shaping the real estate laws in Saudi Arabia and has been working on revisions since 2013 with input from various stakeholders such as developers, lawyers and financiers. These revisions are expected to be finalized soon and will provide greater clarity on a number of issues such as ownership, taxation and development. The government is also working on a new National Housing Strategy that is due to be unveiled in 2019 and this is expected to include a number of initiatives to help boost the sector.

The future of the real estate laws:

The revisions to the real estate laws are expected to be finalized soon and will provide greater clarity on a number of issues. These revisions, coupled with the government’s new National Housing Strategy, are likely to result in a more favorable environment for investment and development in the sector. This, in turn, is expected to lead to more foreigners investing in Saudi Arabia’s real estate market and helping to boost growth.

3. Conclusion

The mortgage market in Saudi Arabia is still in its infancy but has great potential for growth. The real estate laws in Saudi Arabia are relatively new and are not well understood by most Saudis. The government is working on revisions to the laws that are expected to be finalized soon and will provide greater clarity on a number of issues. These revisions, coupled with the government’s new National Housing Strategy, are likely to result in a more favorable environment for investment and development in the sector. This, in turn, is expected to lead to more foreigners investing in Saudi Arabia’s real estate market and helping to boost growth.

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