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January week 1

Al Mazaya: Saudi mortgage sector constantly progressing despite market challenges

SAR 244.1 billion in mortgage loans by the end of Q3 2018

Mortgage loans provided by various financing channels in the Kingdom of Saudi Arabia account for a significant share of the total loans in the country. They increased by 7.2% at the end of Q3 2018, namely SAR16.34 billion, bringing the total value of mortgages to SAR244.1 billion by the end of the same period, 58% of which are retail loans while corporate mortgages stood at SAR96 billion during the same period.

Loans for the renovation and improvement of real estate units, classified as consumer loans, have amounted to more than SAR28 billion. The accelerated pace and increasing values of mortgage loans provided by banks and financing companies reflect growing mobility in the real estate sector derived from the rise in investment opportunities available.

The ongoing partnership between the Ministry of Housing, Real Estate Development Fund and the financing agencies have created financing solutions for a large segment of those on loan waiting lists in the KSA.

According to Al Mazaya Holding's weekly real estate report, mortgages are constantly on the rise in most of the markets of the region and the world, regardless of financial and economic conditions. Mortgages are going in in line with local demand by the end-user at times and by investors seeking adequate financing by mortgaging space lands or ready-to-move-in buildings at other times.

It has transpired that mortgage carries forward several advantages for the real estate sector in particular and other commercial and economic sectors in general, as it is deemed as an acceptable guarantee by the banking sector and regulatory authorities to preserve asset values on the one hand  while maintaining possibility of monetization and recovery of financing values on the other.

The region's markets are seeing more day-to-day deals, indicating that demand for real estate products is still in place and will positively reflect on other economic sectors.

Al Mazaya report added that mortgage deals have increased by 53% to 12,360 transactions. However, there is still a need for new mechanisms and procedures to ensure recovery across the real estate market, most notably supporting the mortgage system, as banks and financing channels cannot lend without tangible collateral.

Al Mazaya Holding's weekly real estate report highlighted the importance of the mortgage system in the Kingdom. The system is aimed at forging solutions to many of the challenges and problems faced by the real estate market and the banking sector in addition to striking a supply-demand balance while promoting the mortgage culture, as this kind of financing aims to accelerate the real estate market and ensure flexibility in the implementation of executive procedures for mortgaged property.

The new commercial mortgage system in Saudi Arabia is part of rapid steps being taken to improve the business and investment environment. The system enhances the contributions of the private sector to the development march, drives economic growth and improves competitiveness.

The private sector can benefit from its operational assets and obtain financing effectively, specially SMEs, which will play a role in improving the Kingdom's credit rating and its position on international indices, said the report.

Al Mazaya report affirmed real estate price correction in KSA would persist as the current recession is a result of the oversupply recorded over the past period as well as the decision to impose fees on undeveloped or the so-called ‘white’ land.

Al Mazaya expected the Saudi real estate market to witness further price correction, with the market to move towards more regulation in terms of buying and selling.

The decision by the Saudi Arabian Monetary Authority (SAMA), to raise the housing finance rate to 90% aims to support the growth of the mortgage sector and facilitate citizens' homeownership.

The report affirmed that the mortgage system carries forward a significant positive influence on the real estate market as a whole and falls within the objectives of Saudi Vision 2030 and the National Transformation Program 2020. Al Mazaya says that the next phase will see more progress and achievements in the mortgage sector, depending on how far the investment culture and Public-Private Partnership (PPP) will grow.