Saudi mortgage law to boost home loan market
Riyadh, July 4, 2012
Saudi Arabia's new mortgage law should make home loans a larger part in bank lending portfolios and also tackle the controversial question of default, Rehan Khan, chief financial officer at Saudi British Bank (SABB), said on Wednesday.
The world's top oil exporter said on Monday its cabinet had approved the legislation, more than a decade after it was first proposed, but did not divulge details of the new regulations.
'Mortgage lending is around 6 percent of our overall loans, which is very small by international standards,' Khan told Reuters in a telephone interview. 'I'd expect those ratios to change quite a lot over the next five years.'
SABB, the affiliate of HSBC, is the country's fourth-largest listed lender by market value.
Most Saudi banks already offer home-buying loans, but these are secured against salaries rather than property. That makes them restricted to Saudis who work for big companies or the government.
SABB caps loans at a debt burden ratio of 50 per cent, meaning a customer can not owe more than half his salary each year in loan repayments, Khan said.
In Saudi Arabia, mortgages now comprise only around 2 per cent of gross domestic product, compared to around 70 per cent in the US and United Kingdom, Jadwa Investment said in a note earlier this week.
Religious authorities in the birthplace of Islam oppose the concept of housing repossessions, which are also seen as politically sensitive after last year's Arab uprisings.
Under existing Saudi home loans, the property is held in the bank's name and ownership is only formally transferred once the loan is repaid.
A housing shortage has caused grumbles among many young Saudis in recent years and kept inflation up. But a law to regulate mortgage lending secured against property has been hampered because of opposition to the idea that loan defaulters - and their families - might lose their homes.
The legal uncertainty over foreclosure has been the main concern of lenders, Jadwa Investment said. The mortgage law codifies the foreclosure process and will therefore give housing finance providers greater confidence to lend, it added.
The law comes after King Abdullah ordered construction of 500,000 new homes last year as a part of an overall spending package estimated at $110bn, or 19 percent of gross domestic product, which was aimed at easing social tensions.
However, structural problems such as high land costs may prevent the market from booming any time soon despite the new mortgage law, analysts have said.
'There's still a lot more detail to come out and that will obviously need to be assessed and reviewed. It's definitely what we wanted to see,' Khan said.
'And it should provide that momentum for all three parties - the developers, the customers and the banks,' he added.
When ready, the central bank (Sama) plans to publish rules on mortgage financing on its website to collect expert views, its governor said on Tuesday.
Finance Minister Ibrahim Alassaf said on Monday that the law would be implemented within 90 days after the Sama completes the regulations.
'I think everyone will know better where they stand, especially in terms of defaults, which was what the legislation was looking to pin down. The full impact of this will really be seen once we have seen the full documentation,' Khan said.-Reuters