RIYADH – Saudi Arabia has started an initial work for building the first batch of a massive low-income housing plan announced by the Kingdom early this year, CB Richard Ellis Bahrain said in a report Tuesday. These housing units, which are intended to meet the needs of the lower income sector, will be located around the Kingdom, with the first of them currently being masterplanned on various sites totaling 32 square kilometers, according to a research note released by CBRE Bahrain. As much as $67 billion has been set aside for the construction of 500,000 housing units. Government policy through 2012 remains focused on infrastructure and social programs. Reports indicate that the Saudi Arabian Monetary Agency (SAMA) will publish the new rules on mortgage financing in order to receive feedback before implementation, said CBRE Bahrain. Saudi home lending grew at the fastest pace in at least four years in the second quarter, as the country's mortgage law comes into effect. Mortgage lending jumped 83 percent to SR48 billion riyals from the year-earlier period, the highest on record according to central bank data. Home purchases in the Kingdom are growing as the economy expands five times faster than the Group of 10 nations, data compiled by Bloomberg showed. “Housing has become a government priority," Jarmo Kotilaine, chief economist at Jeddah-based National Commercial Bank, said. “The fact that it's so central to the government's policy actions means that in general banks feel comfortable going into this space. Home financing is also an underdeveloped market and banks can build their assets in this area." The Kingdom needs to bridge a housing shortage for a population that's quadrupled in size in 40 years to 28.4 million in 2011. The government needs to build 1.25 million new homes by 2014, according to its development plan. Real estate construction has been on the rise since King Abdullah, Custodian of the Two Holy Mosques, announced in March 2011 a plan to spend SR250 billion to build 500,000 homes to tackle the shortage in supply . Housing loans represent only about 3 per cent of banks' loan portfolios and about two per cent of the kingdom's gross domestic product, Moody's Investors Service wrote in a July report. That compares with between five per cent and 10 per cent of GDP in most other GCC countries, it said. “Mortgage lending by banks has been seeing strong growth, although it remains small compared to the size of the economy," Monica Malek, Dubai-based chief economist at EFG-Hermes Holding SAE, said. The home-loan jump is tracking a broader advance in lending growth as the Kingdom pursues plans to spend $514 billion to build properties, industrial cities and airports. Credit to private businesses grew 14 percent in July, the fastest pace in more than three years, to SR899 billion, the central bank data showed. The mortgage law will “help developers increase their sales by expanding the target population for new properties," said Turki Fadaak, the head of research at Albilad Investment Co. in Riyadh. “Real estate developers and finance companies will also be able to form new ventures." The legislation includes five laws that facilitate the creation of mortgage providers, outline the foreclosure process and provide for oversight of lenders. Regulations for implementing the law would be issued within three months, Saudi Finance Minister Ebrahim Al Assaf said in July. Loan demand has lifted the three-month Saudi interbank offered rate, known as Saibor and the benchmark used by banks to price loans, 18 basis points, or 0.18 percentage point, this year to 0.95625 percent Sunday, the highest since April 2009, data compiled by Bloomberg showed. The rate's spread over the equivalent US rate widened to 54 basis points Sunday from 20 basis points at the end of 2011. – SG
