The Saudi Arabian Monetary Agency’s (SAMA) governor earlier this week announced that the central bank is preparing rules for mortgage financing and monitoring of finance companies. The announcement was made following the cabinet's approval of a long-awaited mortgage law draft. The new law will allow, for the first time, the creation of products secured against property, meaning the borrower will now benefit from the ownership of an asset.
“The introduction of these new laws has been keenly awaited for some time. A draft of the Real Estate Mortgage Law previously cited by us provided for the introduction of a system under which mortgages over Saudi land could be registered in favour of financiers, and the registered mortgagee would have priority rights against third parties,” said Hesham Al Homoud, the head of Al Tamimi & Company’s corporate and commercial department, in a statement.
“We also expect the other laws included in the package to have a very significant impact upon the finance industry in (Saudi Arabia), both in terms of regulation and the way in which banks and other finance providers conduct business in (Saudi Arabia),” he added.
On July 2, Saudi Arabia cleared the draft that is expected to help solve a chronic housing shortage in the oil-producing kingdom. The limited supply of low- and medium-cost housing has been one of the key inflationary factors in recent years. Finance minister, Ibrahim Alassaf, told the state-run Saudi Press Agency that the law would be implemented within 90 days after SAMA completes the regulations.
"These regulations, with all their contents, will be published on SAMA's website in order to receive views of specialists and beneficiaries in preparation for their issuance after coordinating with the relevant government agencies," said SAMA governor, Fahad al-Mubarak, on the central bank’s 's website.
Mubarak also said SAMA's regulations would include action mechanisms for mortgage financing, consumer rights, and support to beneficiaries in addition to listing means of refinancing through securities covered by mortgages. He said that the central bank would amend rules for financial leases addressing current weaknesses in the regulation.
The mortgage law is expected to create a new revenue stream, and will thereby prove to be a boon for banks. Annual demand has been put at 150,000 and 200,000 units per year, according to real estate service company Jones Lang LaSalle.
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