Saudi Arabia has chosen the perfect time for the enactment of the mortgage law because it has the benefit of hindsight to avoid mistakes made in other economies, said Capitas Group International, a Jeddah-based management firm specializing in the Shariah-compliant finance industry in its opinion on Monday entitled “The Mortgage Law - What Comes Next?” Nonetheless, in order for the mortgage law to deliver on its objective of increasing homeownership, it must be supported by effective regulations and developers must be able to quantify the profitability of building homes for middle market homebuyers, it said. Nasser Al-Nubani, Capitas' executive vice president and general counsel, said the effectiveness of supporting regulation in managing and implementing this legislation will be the key measuring stick of the success of the Mortgage Law. Indications are that the Saudi Arabian Monetary Agency (SAMA) will be responsible for establishing the regulations that will support the mortgage law once it is enacted. “Enactment of the mortgage law will not flip a magic switch that automatically turn renters into homeowners,” said Al-Nubani. “In order to increase the rate of homeownership in the Kingdom, affordable housing must be made available to middle and lower income members of the market. Until now developers have focused on building homes that cater to upper class homebuyers who are able to purchase homes on a cash basis. This is because to date banks have been reluctant to provide home financing in KSA.” Currently mortgages only make up one percent of the country's GDP and only 2 percent of bank assets. Therefore, developers have shied away from building homes that meet the needs of consumers who are unable to purchase on a cash basis. CGI said the presence of specialized mortgage finance companies in any market is a critical factor in sparking homeownership. Unlike banks, which offer multiple lending products, are mainly motivated by capturing a consumer's deposit relationship, and are restricted by overexposure to real estate, mortgage finance companies operate on a more targeted business strategy. Mortgage finance companies specialize in bringing homebuyers and developers together. As both real estate and finance specialist, mortgage companies drive a singularly focused business objective which involves working with and educating developers on the profile of its preapproved customer base of middle market homebuyers. Once developers are able to rely on the purchasing power created by mortgage finance companies for middle market participants they will plan developments with homes that are affordable to the average Saudi homebuyer. There is great potential for the real estate and mortgage industries in Saudi Arabia. In order for these burgeoning industries to translate their success into an increase in homeownership throughout the country, the Mortgage Law and its supporting regulations must be effectively administered, enabling mortgage finance companies to support the development of the market by offering specialized home financing solutions that bridge the gap between middle market homebuyers and developers.
