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Fri, 10 Dec 2010 | 10:57 GMT

     
 Country Analysis   Countries:   Saudi
Saudi Arabia
Arabia  
Key Developments
Business Outlook
Last Updated: 02 Jul 2008
Background
  
 
Country Fact Sheet
Political Structure Saudi Arabia economy: Home loans ahead Previous Updates
Social Indicators &
Living Standards
Demographic Profile COUNTRY BRIEFING
Economy
Country Risk FROM THE ECONOMIST INTELLIGENCE UNIT
Summary
The painstaking process of establishing a legal framework for mortgages in Saudi Arabia took an important step
Country Outlook
forward on July 1st when the Majlis al-Shoura (consultative council) approved the four main elements of the
Economic Structure
kingdom's first mortgage law. The law will now go to the cabinet and the Supreme Economic Council for final
Quaterly Economic
approval. This is expected to happen relatively quickly, as the government has indicated that it views the passage of
Indicators
the mortgage law as an essential part of its approach to combating inflation, which is now running at more than 10%,
5-Year Forecast  
Summary
largely driven by the rapid increase in rental costs.
Ten-year Growth The four laws (or nizams) that the Majlis al-Shoura have been considering deal with mortgage finance, supervision of
Outlook
mortgage companies, financial leasing and mortgage registration. There has been little information divulged about the
Market Opportunities
substance of the laws. One issue that is likely to have provoked some debate is how to tackle the question of
Manufacturing repossession within the context of Islamic law (sharia), which is generally thought to rule out taking away a family's
Regulations home. This matter has been successfully dealt with in other mainly Muslim countries, most recently Egypt, but it could
Licensing and still prove to be a stumbling block in the uniquely conservative Islamic context of Saudi Arabia.
Intellectual Property
Investment Suppressed demand
Regulations
Competition and Price There is little question once a workable mortgage law is on the statute books, this segment of the Saudi financial
Regulations services industry will grow rapidly. According to a recent note issued by Jeddah-based National Commercial Bank
Operating Risk (NCB) on the real estate sector, there will be incremental demand for 1.3m homes over the next seven years, with an
Overview estimated value of some US$180bn. Owing to the limited availability of housing finance, almost half of Saudi Arabia's
estimated 4.5m homes are currently rented.

Bank credit to the real-estate sector has been growing rapidly in recent years, but is still less than 1% of GDP. The
Saudi Arabian Monetary Agency (SAMA; the central bank) has set limits both on the amount that a bank may lend to
a single borrower for the purpose of purchasing a house and on the tenor of such loans. Under a dedicated mortgage
law, such constraints will be diminished. According to NCB, the mortgage market is expected to expand to US$23bn
by the end of 2012, and to account for 4.4% of GDP.

Most of the banks currently operating in the kingdom are positioning themselves to expand their mortgage operations
once the new law is passed. Mortgage companies from elsewhere in the Gulf—for example Amlak and Tamweel,
both of the UAE—are also gearing up to expand in the Saudi market.

Learning from others' mistakes

However, it could still be some time before the Saudi mortgage market takes off. The law itself still needs to secure
final approval, and it will then be necessary to draft bylaws and to establish the regulatory authority. The experience
of Egypt also showed that the development of this sector can be stymied by deficiencies in both the mortgage law

http://www.zawya.com/marketing.cfm?zp&p=/countries/sa/macrowatch.cfm?eiusection=HOME%20LOANS%20AHEAD[10/12/2010 11:57:41]