Saudi Arabia has approved a draft law allowing mortgages to be sold in the kingdom for the first time, the state news agency has confirmed.
Housing has long been an issue in a fast growing country of 27 million people, most of whom are under the age of 30 and face limited options for getting a mortgage.
The law is also expected to be a boon for banks, by creating a new revenue stream. Annual demand has been put at 150,000 and 200,000 units per year, according to real estate service company Jones Lang LaSalle.
‘It should help address one of the critical social issues in the kingdom. Banks are well capitalised, liquid and geared up to proved the lending that is required,’ said James Reeve, senior economist at Samba Financial Group.
The long awaited law has been held up due to considerations around providing mortgage finance in an Islamic sharia compliant manner, and how to deal with sensitive issues such as letting banks take away a borrower’s home if they default.
While not providing details, the statement reported by the Saudi Press Agency said the draft includes measures ‘to ensure the fairness of the transaction and the safety of the financial system’.
Home loans do exist in Saudi Arabia, with payments deducted from salaries when these enter bank accounts. However, the new law allows for the first time the creation of products secured against the property, meaning the borrower can benefit from ownership of the asset, the statement said.
Regulation of the mortgage sector will be undertaken by the country’s central bank, the Saudi Arabian Monetary Agency, the statement added.