Saudi Arabia Real Estate: Home Loans in Saudi Arabia Double After Mortgage Law Passes

By Staff Reporter | September 5, 2012 1:44 PM EDT

Mideast Money-Slow Pace of Housing Reform Frustrates Saudis

Mideast Money-Slow Pace of Housing Reform Frustrates Saudis (Photo:

Saudi Arabian home lendings are growing at a rate that is unprecendented in nearly half a decade, a strong sign that banks in the region are willing to take back risk after the largest Arab nation passing a mortgage law.

Central bank data showed that mortgage lending jumped 83 percent to 48 billion riyals--about US$12.8 billion--from 2011, the highest on record according to central bank data. In the United Arab Emirates, home loans by banks grew less than 1 percent in 2012, while credit to Qatar's real estate industry rose 34 percent in the second quarter.

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Lenders in the country had been anticipating the country's mortgage law ever since it was proposed a decade ago. It finally passed last month, on July 2nd. 

The law may give banks more incentive to hand out home loans to a more diverse population because it defines the rights of borrowers and banks, according to a report by Bloomberg.

The home-loan jump is tracking a broader advance in lending growth as the kingdom pursues plans to spend US$514 billion to build properties, industrial cities and airports. Credit to private businesses grew 14 per cent in July, the fastest pace in more than three years, to 899 billion riyals, central bank data show.

The mortgage law would "help developers increase their sales by expanding the target population for new properties", said Turki Fadaak, the head of research at Albilad Investment in Riyadh. "Real estate developers and finance companies will also be able to form new ventures."

This law will boost real estate, as real estate construction has already begun the rise since King Abdullah announced in March 2011 a plan to spend 250 billion riyals to build 500,000 homes to tackle the shortage in supply at a time when other Middle East countries were facing popular unrest.

The monarch also turned the kingdom's housing authority into a ministry with a budget of 15 billion riyals.

Housing loans represent only about 3 percent of banks' loan portfolios and about 2 per cent of the kingdom's gross domestic product, Moody's Investors Service wrote in a July report.

"Mortgage lending by banks has been seeing strong growth, although it remains small compared to the size of the economy," Monica Malik, Dubai-based chief economist at EFG-Hermes Holding, told Bloomberg. 

Saudi developers have also approached bank loans to build real estate projects. Mecca-based Jabal Omar Development Co signed in June a 5 billion-riyal Islamic financing deal to complete the first stage of its projects in Islam's holiest city.

Emaar Economic City, a unit of Dubai's Emaar Properties PJSC, meanwhile, is building a real estate project in King Abdullah Economic City on the Red Sea coast that will house about two million people. Red Sea Housing Services, based in Jubail, said in July it was investing 2 billion riyals in expansion.

"Banks have got a lot of room to increase lending further," said James Reeve, the London-based senior economist at Samba Financial Group. "You will see a lot more mortgage lending in the second half. That has certainly picked up a lot in the first half. Lending across the board will increase."

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