| 29 Apr 2010 |
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Effective implementation of regulations key to success of Saudi mortgage law
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Saudi Arabia has benefit of hindsight to avoid mistakes made by other economies
Jeddah, 29 April 2010: Capitas Group International, a Jeddah, Saudi Arabia based management firm specializing in the Shari'ah compliant finance industry, released an opinion article today entitled "The Mortgage Law - What Comes Next?" which gives insight on mortgage regulation and offers recommendations on successful implementation of the Saudi Arabia Mortgage Law once it is enacted.
According to the Article written by Nasser Al-Nubani, Capitas' Executive Vice President and General Counsel, Saudi Arabia has chosen the perfect time for the enactment of the mortgage law because it has the benefit of hindsight to avoid mistakes made in other economies. Nonetheless, in order for the mortgage law to deliver on its objective of increasing homeownership, it must be supported by effective regulations and developers must be able to quantify the profitability of building homes for middle market homebuyers.
The effectiveness of supporting regulation in managing and implementing this legislation will be the key measuring stick of the success of the Mortgage Law. Indications are that the Saudi Arabian Monetary AgencySaudi Arabian Monetary Agency
(SAMASAMA) will be responsible for establishing the regulations that will support the mortgage law once it is enacted.
"Enactment of the mortgage law will not flip a magic switch that automatically turn renters into homeowners," said Mr. Al-Nubani. "In order to increase the rate of homeownership in the Kingdom, affordable housing must be made available to middle and lower income members of the market. Until now developers have focused on building homes that cater to upper class home buyers who are able to purchase homes on a cash basis. This is because to date banks have been reluctant to provide home financing in KSA."
Currently mortgages only make up one percent of the country's GDP and only 2 percent of bank assets. Therefore, developers have shied away from building homes that meet the needs of consumers who are unable to purchase on a cash basis.
According to CGI, the presence of specialized mortgage finance companies in any market is a critical factor in sparking homeownership. Unlike banks, which offer multiple lending products, are mainly motivated by capturing a consumer's deposit relationship, and are restricted by overexposure to real estate, mortgage finance companies operate on a more targeted business strategy.
Mortgage finance companies specialize in bringing homebuyers and developers together. As both real estate and finance specialist, mortgage companies drive a singularly focused business objective which involves working with and educating developers on the profile of its preapproved customer base of middle market homebuyers. Once developers are able to rely on the purchasing power created by mortgage finance companies for middle market participants they will plan developments with homes that are affordable to the average Saudi homebuyer.
There is great potential for the real estate and mortgage industries in Saudi Arabia. In order for these burgeoning industries to translate their success into an increase in homeownership throughout the country, the Mortgage Law and its supporting regulations must be effectively administered, enabling mortgage finance companies to support the development of the market by offering specialized home financing solutions that bridge the gap between middle market homebuyers and developers.
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Capitas Group International is a joint venture between the Islamic Corporation for the Development of the Private Sector (ICD), a member of the Islamic Development Bank Group, and Capitas Group, LLC, a US based Shari'ah compliant holding company. The two companies are aligned by a common vision of advancing economic policy objectives throughout the OIC by partnering with public and private sector institutions to bring Shari'ah compliant finance solutions to the market. The strategic partnership combines Capitas Group's experience in developing and launching Shari'ah compliant financial services platforms, and ICD's comprehensive access to Islamic finance markets in its member countries. Capitas Group International is collaborating with some of the most respectable and stable organizations in the world to develop and launch public and private financial institutions and platforms throughout the MENA region. Most recently Capitas Group International has been entrusted with the task of developing, launching, and managing the creation of a $533 million financing company in Saudi Arabia geared to provide financing to small and medium sized developers and middle income homebuyers.
For more information, please contact:
Saeed Al Amoudi
TRACCS - Jeddah
Tel: (+9662) 6625757
Fax: (+9662) 6399540
Email: saeed.alamoudi@traccs.net
© Press Release 2010
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