Wednesday, Jul 04, 2012
(This story was originally published Tuesday)
-- Impact likely to be gradual
-- Construction constrained by high land prices
-- Developers already offer mortgage finance
By Ellen Knickmeyer
Of ZAWYA DOW JONES
RIYADH (Zawya Dow Jones)--Saudi Arabia's adoption of long-awaited legal guidelines for home loans should help develop the country's real-estate sector in the long-term but will have only a gradual impact on new housing construction, analysts said Tuesday.
The Saudi Council of Ministers approved what is intended to be the country's first comprehensive mortgage guidelines on Monday. Legislation enacting the new measures should be completed within 90 days, Finance Minister Ibrahim Al-Assaf said in a statement to the state news agency.
The new mortgage laws will "give more confidence to investors and developers to invest in real-estate companies and real-estate projects, so over time we would expect the supply side in the real-estate sector to increase," said John Harris, the head of operations in Saudi Arabia for Jones Lang LaSalle, a global real-estate services firm.
But investors will wait to see how authorities apply and enforce the new mortgage laws before acting, Mr. Harris said. "It's not going to transform the market overnight," he said.
Saudi Arabia has a shortage of houses for its young and growing population. Many middle-income Saudis are forced to rent because they can't find a suitable house to buy, which pushes up rental prices in the kingdom, Mr. Harris noted.
The shortage is partly explained by unusually high land prices, analysts say. Low bank interest rates and the absence of property- or capital-gains taxes encourage the kingdom's more affluent families to hold on to land as a means of safeguarding their wealth.
"I don't think it's going to have much impact on that issue," Mr. Harris said of the mortgage laws.
"No matter how much extra money you give to the customers, there will always be the same bottleneck with high land prices," said Essam al Zamel, a Dammam-based columnist on land and housing issues. "Prices will just go up for land."
Several large Saudi institutions, from the government to petrochemical-giant Saudi Basic Industries Corp (2010.SA), already have large housing projects under way in an effort to ease the shortage. A first phase of a government effort to build affordable houses is slated to start bringing 150,000 new units into the market within three to four years, for instance, Mr. Harris said.
And the new mortgage rules are unlikely to make a flood of new finance available to Saudi home buyers. Many of Saudi Arabia's listed developers already offer housing finance, "so it may not have a huge impact" for real-estate companies immediately in that regard, said Paul Gamble, chief economist of Jadwa Investments.
But expectations for a long term boost to the real estate sector helped Saudi real estate stocks on Tuesday. Real-estate stocks overall were up 2.49% by midday Tuesday, compared to 1.96% for the market overall, and after gaining strongly on Monday. The share price of leading developer Dar al Arkan Real Estate Development Co. (4300.SA) rose 2.93% to 10.55 riyals by midday.
Hamad bin Ali Shuweir, chairman of the real estate committee of the Saudi Council of Chambers of Commerce, told the Saudi state press agency on Tuesday that the adoption of the mortgage laws was critical to the economy. It would take a few years, however, for the measures to go into effect, and "for the whole picture to become clear," Mr. Ali Shuweir said.
-By Ellen Knickmeyer, Dow Jones Newswires, +971 55 1093359, ellen.knickmeyer@dowjones.com; Twitter: @ZDJnews
Copyright (c) 2012 Dow Jones & Co.
(END) Dow Jones Newswires
04-07-12 0343GMT
