Thursday, Aug 30, 2012
Dubai: Saudi Arabia passed its long anticipated mortgage law early July, but lenders are yet to loosen their purse strings for it to make an immediate impact on the kingdom’s real estate market.
Industry estimates suggest there is a shortage of 1.4 million units within the kingdom’s residential marketplace. The new law will pave the way for the setting up of dedicated mortgage providers, create guidelines on foreclosures and set up a regulatory overseer for the sector.
“Though the long term benefits [from the mortgage law] are clear, lenders will wait and see how courts and regulators enforce the provisions particularly in respect of defaults,” said John Harris, head of property consultancy Jones Lang LaSalle’s Saudi operations.
Allowing lenders to repossess properties in the case of defaults is the obvious next step. But enough precedents will have to be set by Saudi courts on such instances before lenders can have the requisite degree of confidence that they have covered all possible angles.
Market fundamentals
While that may be the case, there is no denying that the mortgage law is the best thing to have happened in Saudi Arabia’s property market for some time. While the authorities have been giving social housing programmes whole-hearted support, demand for residential offerings continues to easily outstrip current supply levels. This can only bode well for the market’s fundamentals.
Ammar Shata, executive director and CEO at the investment firm Alkhabeer Capital, is in broad agreement with the sentiment. “The Saudi real estate sector is currently evolving from being a buoyant market for speculative land sales to a buoyant development market to meet supply scarcity,” Shata said.
“We strongly believe in the residential sector in all the cities; real estate is expected to benefit from the revival of incomplete projects as the government plans to enhance supply of residential units to cover the huge supply gap. The medium to lower category residential units would be the real gainers in this renewed activity.”
Bigger players
There could also be a revival in off-plan residential sales, which was once frowned upon by Saudi authorities. Now, off-plan sales are allowed once a developer has made the appropriate registrations with the Ministry of Commerce,” said Harris. “This represents a modest share of transactions, but we expect it will increase over time as developers and regulators get more comfortable with the system.”
The big question how long will it take before sustained end-user demand and a gradual easing of mortgage funding provide developers, especially the bigger players, the incentive to come up with new projects? “The market will see the release of new projects and push for the completion of existing projects as there is not much inventory available for sale,” said Harris.
As far as favourable factors go, developers in Saudi Arabia shouldn’t ask for more.
By Manoj Nair Associate Editor
Gulf News 2012. All rights reserved.
