Saudis queue for mortgages as kingdom boosts market

High school teacher Othman Abdel Jabbar never imagined he could own a home in his native Saudi Arabia, where high prices and a lack of mortgage financing meant the resource-rich Gulf state was lagging behind its G20 peers in home ownership.

But last month Abdel Jabbar, 36, entered a one-stop shop set up by the Housing Department to facilitate home ownership. They checked his finances, referred him to a bank kiosk where he could apply for a government-subsidized mortgage, and then to real estate developers who helped him find housing.

Two weeks later, Abdel Jabbar returned to sign his mortgage deal on a SR1.3 million (US$340,000) house. “It was beautiful,” he said. “You made it easy for yourself.”

Saudi Arabia is experiencing a housing and mortgage boom that reflects the government’s efforts to encourage home ownership as part of an effort to shake up the oil kingdom’s economy and its ultra-conservative society.

Crown Prince Mohammed bin Salman, the kingdom’s day-to-day ruler, has taken an ironclad approach, jailing critics and drawing Western shame for the killing of journalist Jamal Khashoggi by Saudi agents. But the government’s broader reforms, which included ending restrictions on women’s driving and entertainment, have won him the support of a young populace who make up his key constituency – and they want jobs and homes.

“Even in a more difficult economic environment, it makes sense to continue to prioritize residential construction. Domestically, this is a key issue,” said Karen Young, director of the business and energy program at the Middle East Institute think tank.

Saudi Arabia, the world’s largest oil exporter, has had relatively low home ownership rates for decades — just 47 percent in 2016, compared to more than 60 percent in the UK and US. Most people rented or lived with their families. State housing grants were available, although prospective buyers used to have to wait a decade, sometimes two, to get them.

Under Islamic law, paying or receiving interest is frowned upon, and it was only in 2012 that regulations allowing mortgages were enacted. Since the government announced a target of 70 percent home ownership in 2016 – as part of broader plans to transform the country economically and socially by 2030 – it has risen to over 60 percent, almost on par with the US and UK. Mortgages grew from nothing a decade ago to a $124 billion industry with about 870,000 signed contracts, according to figures from the Housing Department.

Analysts say this was one of the more successful aspects of Riyadh’s ambitious plans, known as Vision 2030. Some better-known projects, like the much-ridiculed $500 billion plan to build the futuristic city of Neom on the Red Sea coast, are far behind schedule.

“It’s one of the few Vision 2030 targets that’s on track and it’s really a result of them being able to pump money into the system with the banks working together,” said Tarek Fadlallah, Managing Director of Dubai -based Nomura Asset Management.

Applicants for the Department of Housing’s Sakani program, which offers subsidized mortgages, must be first-time buyers with families. You can download the Ministry of Housing app or visit one of its centers in person. The government agrees to pay interest on loans up to SR500,000 and exempts buyers from property taxes. The borrower pays interest on loans exceeding this amount.

North of the capital, Riyadh, new cities are rapidly emerging. In a project called Murcia, the state-run National Housing Company has built rows of new villas, painted gray and yellow, costing between SR560,000 and SR1m. When finished it will be a sprawling suburb, bisected by a canal, with gardens and a shopping boulevard.

Mortgage growth has been so high that one of the UK’s leading mortgage lenders, when meeting foreign investors, hears concerns that it is a bubble about to burst. Increased demand has helped Riyadh’s villa prices to rise 18.6 percent and 20 percent for apartments, the fastest growth in five years, according to a report by Knight Frank.

Fabrice Susini, CEO of state-owned Saudi Real Estate Refinance Company, said: “The growth of the market . . . is stunning. But when I say this to mostly international investors, when we start talking about the mortgage market, sometimes the numbers scare them because it’s unheard of that there’s a market that’s growing over four years [this fast]. But people need to step back and realize we’re starting from a very low point.”

To stimulate the mortgage market, the government turned to its state-owned public investment fund, which is headed by Prince Mohammed and oversees many of the 2030 projects. The SRC, which provides liquidity to banks through the sale of mortgage-backed securities, is a PIF company, as is Roshn, a major home builder.

In fact, the government created what Susini called an “ecosystem” to boost a housing market.

As with other PIF and government-led projects, some in the private sector complain that they are being sidelined. Others counter that the private sector would not deliver fast enough on its own. “The reality is, if PIF wasn’t there, who would or how long would it take,” Susini said.

Some analysts have warned of risks for banks from increased mortgage lending. According to a March 2022 JPMorgan report, personal loans accounted for 42 percent of the loan book, up from 28 percent in 2009. Mortgages accounted for 49 percent of personal loans originated in 2021, up from 25 percent of personal loans in 2016.

For now, Saudis who have given up hope of ever buying a home are happy to have a property to call their own.

Ahmed Majrashi, a retired military man who works at a hotel, said he was driving when he received a call saying his mortgage application for a property in Yanbu had been accepted. “I thought I own a house? Impossible. I parked the car and bowed my thanks to God,” he recalled.