Jadwa Investments released a flash note discussing the recently approved mortgage law in Saudi Arabia, which the bank believes “is a very important step in broadening home ownership.”
The new mortgage law “will help to tackle one of the most pressing social issues for many in the Kingdom and will generate significant benefits to the economy. However, we think it will take some time before the full benefits of the mortgage law are realized and that the initial impact will probably not be substantial.”
Jadwa notes that while estimates vary, less than half of the Kingdom’s population owns their own homes. “This is primarily because those on low and middle incomes have been unable to afford a property. In turn, this has contributed to shortage of housing for this market segment. As a result, rents have risen rapidly (by an annual average of 11.4 percent between 2007 and 2011) and the absence of affordable housing has become a central issue for many. Housing finance from banks and some property developers has been available for some time, but generally lenders have adopted conservative standards, so mortgage penetration is low.”
According to the report, widening home ownership in the Kingdom of Saudi Arabia has broader economic benefits. “A home is an asset that an individual can use as collateral for borrowing. This borrowing could be used to finance small businesses or other productive ventures. A home is also an asset that could appreciate over time and therefore a potentially important source of wealth creation. Broader home ownership could also spur domestic consumption, as home owners are likely to spend more on furniture and household goods than landlords.”
For the full Jadwa Flash Note on the Saudi Mortgage Law, Click Here.
