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Saudis queue to get real estate loans as the kingdom’s market takes off

High school teacher Othman Abdul-Jabbar never thought he would be able to own a home in his native Saudi Arabia, where rising prices and a lack of real estate financing have left the resource-rich Gulf state far behind its G-20 peers when it comes to home ownership.

But last month, Abdul-Jabbar, 36, walked into a one-stop shop set up by the Housing Ministry to facilitate home ownership. They checked his finances, directed him to a bank kiosk where he could apply for a government-backed mortgage and then to property developers to help him find a home.

Two weeks later, Abdul-Jabbar returned to sign a mortgage contract for a house worth 1.3 million Saudi riyals ($340,000). He said, “She was beautiful.” “They made it easy.”

Saudi Arabia is experiencing a boom in the housing and mortgage sector, which reflects the government’s drive to boost home ownership as part of efforts to destabilize the kingdom’s oil economy and ultra-conservative society.

Crown Prince Mohammed bin Salman, the kingdom’s daily ruler, has adopted an iron-fisted approach, imprisoning critics and drawing Western criticism for the murder of journalist Jamal Khashoggi by Saudi agents. But broader government reforms, which have included ending restrictions on women driving and recreation, have earned him support among the young people who make up his main constituency – and they want jobs and homes.

“It makes sense even in a more challenging economic environment to keep housing prioritized. Domestically, this is a key issue,” said Karen Young, director of the Economics and Energy Program at the Middle East Research Institute.

Saudi Arabia, the world’s largest oil exporter, has for decades had relatively low home ownership rates – just 47 per cent in 2016, compared to more than 60 per cent across the UK and US. Most people rented or lived with their families. Government grants for housing were available, although potential buyers used to wait a decade, sometimes two, to get them.

A row of villas under construction at the Saraya Al Narjis development project north of Riyadh © Samer Al-Atrush / FT

Under Islamic law, paying or receiving interest is not acceptable and regulations allowing mortgages were not passed until 2012. Since the government unveiled a target of 70 percent home ownership in 2016 – as part of broader plans to transform the country economically and socially by 2030 It rose to more than 60 percent, roughly on par with the United States and the United Kingdom. Mortgages have ballooned from nothing a decade ago into a $124 billion industry with about 870,000 contracts signed, according to Department of Housing figures.

Analysts say it has been one of the most successful aspects of Riyadh’s ambitious plans, known as Vision 2030. And some well-known projects, such as the much-mocked $500 billion plan to build the future city of NEOM on the Red Sea coast, are far behind. a program.

“It is one of the few goals of Vision 2030 that is on the right track, and it is really a job that they have been able to inject money into the system in cooperation with the banks,” said Tariq Fadlallah, CEO of Dubai. Nomura Asset Management.

Applicants to the Department of Housing’s housing program, which offers subsidized mortgage loans, must be first-time buyers with their families. They can download the Ministry of Housing application or visit one of its centers in person. The government pledges to pay interest on loans up to 500,000 Saudi riyals, and to exempt buyers from property taxes. The borrower pays interest on loans in excess of this amount.

New cities are forming rapidly north of the capital, Riyadh. In one of the projects called Murcia, the National Governmental Housing Company has built rows of new villas painted in gray and yellow, and their prices range from 560 thousand riyals to one million Saudi riyals. When complete, it will be a sprawling suburb divided by a canal, with gardens and a shopping street.

Mortgage growth has been so high that when one of the kingdom’s top mortgage financiers meets with foreign investors, he hears fears that it is a bubble about to burst. The increase in demand contributed to an 18.6 percent increase in the prices of villas in Riyadh, and apartments by 20 percent, the fastest growth in five years, according to a Knight Frank report.

“The market is growing,” said Fabrice Sosini, CEO of the government-owned Saudi Real Estate Refinance Company. . . just awesome. But when I say that to international investors mostly when we start discussing the mortgage market, they sometimes get scared of numbers, because it hasn’t been heard of having a market that has been growing over four years. [this fast]. But people have to take a step back and realize that we’re starting from a very low point.”

To bolster the mortgage market, the government has turned to the sovereign Public Investment Fund, which is chaired by Prince Mohammed and oversees several 2030 projects. The SRC, which provides liquidity to banks through the sale of mortgage-backed securities, is the PIF, as with Roshn, One of the major home builders.

In fact, the government created what Socini described as an “ecosystem” to kick-start the housing market.

Computer drawing of the futuristic city of NEOM on the Red Sea coast
Some of Riyadh’s ambitions have been less successful. The $500 billion plan to build the futuristic city of NEOM on the Red Sea coast is behind schedule © Neom

As with other projects managed by the Public Investment Fund and the government, some in the private sector are complaining of being neglected. Others respond by saying that the private sector, if left to its own devices, will not deliver fast enough. “The reality is that if the PIF isn’t there, who is going to do it or how long is it going to take,” Sosini said.

Some analysts warned of the risks that banks are exposed to as a result of the increase in mortgage lending. Retail loans accounted for 42 percent of the loan book, up from 28 percent in 2009, according to a JPMorgan report released in March 2022. Mortgages made up 49 percent of retail loans made in 2021, up from 25 percent of retail loans Retail in 2016.

Currently, Saudis who have lost hope of buying a home are happy to have a property they can call.

Ahmed Majrashi, a retired military man who works in a hotel, said he was driving when he received a call informing him that his mortgage application for a property in Yanbu had been accepted. “I thought I had a house? Not possible. I stopped the car and prostrated to God. Thank you.”

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