The new law will make it easier for Saudis to purchase their dream homes.
Saudi Arabia will soon have a full-fledged mortgage law as the consultative Shoura Council has passed the long-awaited law after completing debate on its four components. The draft law, which has to be approved by the Council of Ministers, will allow more Saudis to own property and banks to diversify income sources by providing loans to build real estate projects. The four components of the law are: real estate financing system, system to monitor financing companies, lease financing system and real estate mortgage system.
Some businessmen, however, have criticized the draft law. Abdul Rahman Al-Zamil, a Shoura member and industrialist, said the law would not benefit 85 percent of Saudis whose monthly income is below SR5,000: “It will benefit the large real estate firms, large real estate investors, large financial institutions and the middle class”.
The law is designed to allow much wider access to property ownership in a country where only one out of five Saudis owns a home. The new law is expected to lead to the establishment of new real estate firms and funds and open new channels of financing. At least two-thirds of Saudis do not own a home, against 35-32 percent in Europe and the United States, he said. Other estimates are lower, with Abdullatif Al-Shelash, managing director of Saudi Home Loans Co., saying in remarks published in December that only 22 percent of Saudis own a home.
The Kingdom has witnessed a boom in construction and infrastructure projects but realtors say the deficit in housing, especially for low-income households, has not been reduced. Saudi Arabia will need some 4.5 million new housing units within the next five years to accommodate its rapidly growing population.
Read: Arab News
The Saudi construction boom
In the early 1980s almost all housing and real estate development was government sponsored. The situation is changing fast with the private sector leading and more than 50 companies alone licensed to sell and develop real estate in the Kingdom last year. Another indicator of the Saudi construction boom is the expansion of the Saudi building materials industry with cement production expected to double to more than 90 million tonnes a year by 2010.
While existing cities and communities are already seeing major developments there is also an intense focus on the $150 billion worth of government sponsored investment that has been committed to new cities due to be built around a core of economic projects. All of the economic cities will feature major residential and commercial real estate developments. Around 1.5 million people are expected to move to the new cities in the medium term and three times as many by 2020.
The region’s big names are seizing the opportunity. Prince Alwaleed bin Talal al-Saud’s Kingdom Holding Company, following on from its towering Al-Faisaliah development, is planning multi billion dollar real estate investments in both Riyadh as well as Jeddah.
The government’s go ahead for construction of high-rise buildings in Jeddah is being seized upon by companies keen to develop sites overlooking the Red Sea.
Dubai‘s Emaar Properties, apart from its involvement in joint ventures to build the Kingdom’s giant King Abdullah Economic City at Rabigh, is among a growing number of regional developers committed to residential developments in Saudi Arabia. These include the Al-Khobar Lakes and Jeddah Gate projects. The latter involves a $700 million investment to build 5,000 homes on the 5 million square foot old Jeddah airport site.
Dubai’s Damac properties has also decided to enter Saudi Arabia’s fast expanding property sector with plans for a 40 storey tower block development on Jeddah’s corniche. The intention is to establish a strong local presence in a number of Saudi cities Chief Executive Peter Riddoch says.
Major development of hotels and residential accommodation as well as new infrastructure development is also stimulating real estate markets in the pilgrimage cities of Mecca and Medina.
Source: International Property Directory