Saudis line up to apply for mortgages as kingdom launches market

High school teacher Osman Abdul-Jabbar never imagined he would be able to own a house in his native Saudi Arabia, where high house prices and a lack of mortgages mean the resource-rich Gulf nation lags behind in home ownership. G20 countries.

But last month, Abdel Jabbar, 36, walked into a one-stop shop set up by the housing ministry to promote home buying. They checked his finances, took him to a bank kiosk where he could apply for a government-subsidized mortgage, and asked a property developer to help him find a home.

Two weeks later, Abdel Jabbar returned to sign his mortgage contract for a home worth 1.3 million riyals ($340,000). “It’s beautiful,” he said. “They keep things simple.”

Saudi Arabia is experiencing a housing and mortgage boom that reflects the government’s push to boost homeownership as part of an effort to shake up the oil kingdom’s economy and its ultra-conservative society.

Crown Prince Mohammed bin Salman, Saudi Arabia’s day-to-day ruler, has taken an iron fist, jailing critics and drawing Western condemnation for the murder of journalist Jamal Khashoggi by Saudi agents. But the government’s broader reforms, including ending restrictions on women’s driving and recreation, have won him support from the young people who make up his key constituency – who want jobs and housing.

“Even in a more challenging economic environment, it makes sense to continue to prioritize housing. At home, it’s a core issue,” said Karen Young, director of the Economics and Energy Program at the Middle East Institute think tank.

Saudi Arabia, the world’s largest oil exporter, has had a relatively low homeownership rate for decades — just 47 percent in 2016, compared with more than 60 percent in the U.K. and U.S. Most rent or live with family members. The government can provide housing grants, although potential home buyers used to wait ten years, sometimes two years, to get them.

A row of villas under construction at the Saraya al Narjes development in northern Riyadh

A row of villas under construction in the Saraya al Narjes development in northern Riyadh © Samer Al-Atrush/FT

The payment or collection of interest is unwelcome under Islamic law, and regulations allowing mortgages were not passed until 2012. Since the government announced a 70% homeownership target in 2016 – as part of a broader economic and social transformation plan by 2030 – the share has risen to more than 60%, almost on par with the US and UK . Mortgage lending has ballooned from nothing a decade ago to a $124 billion industry with about 870,000 contracts, according to the Department of Housing.

Analysts say this is one of the more successful aspects of Riyadh’s ambitious plan, Vision 2030. Some of the better-known projects, such as the much-maligned $500 billion plan to build the futuristic city of Neom on the Red Sea coast, are far behind schedule.

“It’s one of the few goals to achieve Vision 2030, and it’s actually a function of how they managed to get money into the system with the cooperation of the banks,” said Dubai CEO Tarek Fadlallah. ) Say. – Based on Nomura Asset Management.

Applicants to the Department of Housing’s Sakani program, which offers subsidized mortgages, must be first-time homebuyers with families. They can download the Department of Housing app, or visit one of its centers in person. The government has pledged to repay up to 500,000 Saudi riyals in interest on the loan and waive real estate taxes for homebuyers. The borrower pays interest on the loan in excess of that amount.

New towns north of the capital Riyadh are rapidly forming. In a project called Murcia, the state-run National Housing Corporation has built rows of new villas, painted grey and yellow, priced between 560,000 rials and 1 million rials. When complete, it will be a sprawling suburb bisected by a canal, with gardens and shopping boulevards.

Mortgage lending has grown so fast that when one of the kingdom’s most senior mortgage financiers met with foreign investors, he heard fears it was a bubble about to burst. According to a report by Knight Frank, the increase in demand has led to an 18.6% rise in villa prices in Riyadh and a 20% rise in apartment prices, the fastest pace of growth in five years.

Fabrice Susini, chief executive of the state-owned Saudi Real Estate Refinancing Company, said: “The growth of the market . . . has been phenomenal. When investors say this, they are sometimes spooked by the numbers because they have never heard of a market that has grown more than four years [this fast]. But people have to take a step back and realize that we are starting from a very low point. “

To bolster the mortgage market, the government turned to its sovereign public investment fund, chaired by Prince Mohammed, which oversees many projects for 2030. SRC, which provides liquidity to banks by selling mortgage-backed securities, is a PIF company, as is Roshn, one of the major home builders.

In effect, the government created what Susini calls an “ecosystem” to kickstart the real estate market.

Computer graphics of the futuristic city of Niom on the Red Sea coast
Some of Riyadh’s ambitions have been less successful. Plans for a $500 billion futuristic Neom city on the Red Sea coast are far behind schedule © Neom

As with other PIFs and government-driven projects, some in the private sector complained that they were being pushed aside. Others counter that if left unchecked, the private sector will not deliver fast enough. “The reality is, if there is no PIF, who will do it, or how long it will take,” Susini said.

Some analysts have warned banks of increased mortgage risks. Retail loans make up 42% of the loan book, up from 28% in 2009, according to a March 2022 JPMorgan report. Mortgage loans accounted for 49% of retail loans in 2021, up from 25% of retail loans in 2016.

For now, Saudis who have given up hope of buying a home are happy to own a property they can call their own.

Ahmed Majrashi, a retired military man who works at the 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, own a house? Impossible. I parked the car and bowed my thanks to God,” he recalls.