Saudi Arabia has approved a landmark mortgage law after a delay of more than three years because of reservations by some members of the Gulf Kingdom’s appointed parliament, the official media reported on Tuesday.
The cabinet endorsed the law at a meeting on Monday headed by King Abdullah and newspapers said the law would depress rents that have sharply risen over the past few years and stoked inflation in the world’s oil powerhouse.
“By approving the law, Saudi Arabia has cleared obstacles for tacking soaring rents, inflation and slow credit,” the Arabic language daily Aleqtisadiah said.
The official Saudi press agency quoted finance minister Ibrahim Al Assaf the mortgage law would be enforced after three months and that it would push down property prices and “unlock millions of frozen assets.”
He warned that the new law would be implemented carefully in order to stage off any negative results similar to the devastating US mortgage crisis.
In recent comments, a Saudi official said the approval of the long-awaited mortgage law would help curb sharp increases in property prices, spur bank credit and encourage investment in the sector.
Hassan Akeel, Undersecretary of the Ministry of Trade and Industry, said the mortgage law has become crucial to stabilize the property and construction sector, which he described as one of the most important components of the gross domestic product in the largest Arab economy.
He said the real estate and construction sector is one of the main drivers of the Kingdom’s economy and is the second largest component of GDP after oil.
His figures showed the sector’s contribution to GDP stood at around 7.2 per cent in 2010 and that it expanded by a staggering 50 per cent during 1999-2008, an annual growth of around five per cent. In 2010, the sector contributed by around SR55 billion to GDP and it accounted for 9.5 per cent of the non-oil GDP.
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.
Inflation stood at 5.1 per cent in 2009 and climbed to 5.3 per cent in 2010 before edging down to five per cent in 2011, higher than in most other regional states.