Saudi parliament shelves vote on mortgage law

Saudi Arabia’s appointed parliament has shelved voting on a landmark mortgage law until after its summer recess, boosting speculation that the scheme which could help tackle a housing crisis would not see light this year.

The Shura Council debated the draft law at its session Sunday but decided to postpone discussions until the end of summer although it was presented to it by the cabinet as an urgent matter, Saudi newspapers reported Monday.

“The Shura council surprisingly decided to postpone voting on the new mortgage rules, which have been subjects of differences between the Shura and the cabinet… the Shura decided to resume its debate after summer although many economic sectors have impatiently waited for this law to see light following a surge in demand for housing and expectations that the mortgage law will contribute to tackling this problem,” Aleqitsadiah newspaper said.

In a study last week, a key Saudi bank ruled out the enforcement of the mortgage law this year on the grounds it still lacks implementation details.

The Saudi American Bank Group (SAMBA) said it expected the new law, on the cards for more than two years, to spur banks to partially open their credit lines which they have tightened since the eruption of the 2008 global fiscal crisis and ensuing debt default problems in the oil-rich region.

“Despite the heightened anticipation, there are no clear signs that the law will gain final approval this year. Those who have seen the law say it lacks details about implementation mechanisms, among other areas,” SAMBA said.

It said Saudi authorities are also understood to be concerned that the law, the organized mortgage legislation in the region, would trigger a price bubble.

“Part of this concern centres around the possibility that property developers will continue to ignore the low- and mid-level housing segment, and partly around the fact that land prices in the Kingdom have themselves risen sharply in recent years as a result of speculative investment,” it said.

In recent press comments, a Saudi official said the mortgage law would curb sharp increases in property prices, spur bank credit and encourage investment in the sector, one of the key components of the country’s economy.

Hassan Akeel, Undersecretary of the Ministry of Trade and Industry, said the mortgage law has become crucial to stabilize the property and construction sector, adding that it would bridge a widening gap between housing demand and supply caused by relatively low supply and population growth.

Like in nearby Gulf nations, high rents in Saudi Arabia were among the key reasons for soaring inflation in 2008 along with a surge in imported products, food prices and strong domestic demand due to high oil prices.

Despite a sharp decline in inflation in the Kingdom in 2009 from a record 9.9 per cent in 2008, they remained relatively high due to rising rents. Analysts expect high rents to remain the main reason for inflation, albeit lower, this year.

In another study, Saudi Arabia’s largest bank, National Commercial Bank (NCB), also expected banks in the Kingdom to reverse their tight credit policy and open up their lending coffers after the mortgage law is released.

NCB said the mortgage law offers a huge investment potential to the country’s banks and this could allow them to end their strict credit approach and entice them to invest more at home after accumulating record funds abroad.

“The mortgage law will soon be passed in the Kingdom, offering a new opportunity for banks to expand and diversify their balance sheets,” it said.

“In our opinion, the timing couldn’t have been any better for Saudi banks, given: the currently low interest rates, a relatively higher degree of liquidity in local financial markets, improving consumer confidence, rising per capita income levels in line with our forecast of gradual economic recovery in 2010 and a rapidly growing youthful population.”

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