Banks, foreclosure procedures could be at root of Saudi mortgage law delay

Saudi Arabia, January 9, 2011
Despite many comments made by Saudi Arabian Monetary Agency (SAMA) Gov. Mohammed Al-Jasser last year that a mortgage law would be implemented "by the end of 2010," the Kingdom has entered 2011 with no sign of when such a law will go into effect.


The last update on the process occurred last summer when the law was being reviewed by the Shoura Council, but little more has been done since then.


“I have no knowledge of when the law will be passed or what aspects are delaying it. The Shoura Council has finished with it and has passed it on to the government to decide on,” Shoura Council member Usamah Kurdi told Arab News.


Some of the reasons proffered as to why the law has not been implemented include that the banking system isn't ready and the issue of how foreclosures fit with Shariah have no been rectified.


To get a clearer prospective Arab News spoke to Paul Gamble, head of research and Jadwa Investments in Riyadh.


“Most banks already provide house financing so they will be in a good position to act fairly quickly once they have been able to digest the law,” Gamble said.


Nonetheless, he added that most banks will be unlikely to do so preferring to “test the law,” particularly with regard to the foreclosure process before they will consider significantly increasing mortgage lending.


Media reports quoting sources at SAMA have stated that banks are concerned that once the law goes into effect they could suffer extreme losses if home buyers fail to make monthly mortgage payments or if the home buyers lose their jobs. But, Gamble says that, economically speaking, the enactment of the law could have just the opposite effect.


“Wider home ownership, which is justification for having the mortgage law, and owning a home encourages people to spend to furnish and renovate the home," he said. "It gives them an asset against which to borrow to finance investment. The availability of housing finance and the regular repayments required by a mortgage provider are big incentives for individuals to take jobs and stick with them.”


Widespread use of mortgages would also allow banks to create various products that should improve efficiency of their operations and broaden the financial market, he added.


He advised, though, that high-income buyers should not be the sole focus.


“There is already a shortage in property for those on low to middle incomes, and implementing the law should increase the supply of suitable property once it is clear banks will provide housing finance to those types of buyers,” Gamble said.

-Arab News-