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28 March 2024

No Saudi parliament approval for mortgage law

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By Staff

Saudi Arabia’s appointed parliament failed Sunday to approve a long-awaited mortgage law which could help tackle a housing supply crisis and curb soaring rents that have stoked inflation in the world’s oil superpower.

The Shura Council again debated the landmark draft law at its session on Sunday but could not approve it after an objection by one member, the Saudi Arabic language Alwatan newspaper said on Monday.

The paper quoted sources close to Shura as saying the member, Majdi Hariri, raised some points which blocked endorsement of the draft law at a heated debate, adding that the session was held behind closed doors.

“Hariri justified his objection to the fact that he and other members have not seen all details of the proposed mortgage law,” the paper said without making clear when the council would debate the draft law again.

The mortgage law has been debated by Shura for more than two years but has been held up by differences among its members.

In a recent study, a key Saudi bank said it expected the mortgage law to be delayed further as it still faces obstacles in Shura.
Once it is approved, the law could trigger massive bank financing for housing but it will unlikely transform the real estate sector overnight or directly address housing supply constraints that have kept rents and property prices at very high levels, the Saudi American Bank Group (Samba) said.

 “The bill is currently with the Shura Council, but consideration of the bill has been delayed….… final approval by the Council seems unlikely in the near term, given a number of issues relating to oversight and enforcement of the law that have yet to be resolved,” the study said.”

“Once it is enforced, the mortgage law will not transform the housing finance landscape overnight. The law should help to transform potential demand into real demand, but it does not—directly at least—address supply constraints.”

Samba said it believed the passage of the law would be an important breakthrough in opening up housing finance to a large section of the Saudi national population—the low- and middle-income earners.

“By effectively providing collateral the mortgage law would give banks the comfort they need to expand lending,” it said.

“By effectively providing collateral, the law should therefore provide lenders (primarily banks) with the comfort to expand mortgage lending significantly. Banks have been geared up to accelerate mortgage lending for a long time and are well capitalized with low loan-to-deposit ratios. A well-functioning credit bureau is in place, and salaries are paid directly into bank accounts.”

In press comments last year, 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. Inflation in Saudi Arabia has remained relatively high at around five per cent in the following two years mainly because of high rents