News From Capitas Group International 04th July 2012

The passage of the Mortgage Law in Saudi Arabia is a much awaited milestone for the country's real estate and housing markets. It will spur the emergence of a vibrant real estate finance sector that will be truly responsive to customer needs connecting home buyers' demand with housing supply through much needed purchasing power.

In the next step, it will be critical to watch how these laws will translate into regulations, how the ultimate regulators enforce the laws and manage the sector, and how financiers translate the benefits of the law into better terms and protections for the mass market. The ultimate goal should be for the financial sector to fill the huge gap in funding which amounts to SAR 1.2 trillion over 10 years.

We've included below some select news items which discuss the new law for your review. As always, we look forward to hearing from our friends in the public and private sectors.

 
Naveed Siddiqui
CEO
Capitas Group International



Bloomberg Businessweek - CGI on the Saudi Mortgage Law (July 4,2012)

By Zainab Fattah on July 04, 2012

Saudi Arabia's mortgage law, approved two days ago after more than a decade of debate, will encourage banks to expand lending in a $16 billion market that now accounts for less than 4 percent of all home purchases.

The market may increase to about $32 billion annually over the next 10 years, providing opportunities for lenders, property developers and middle-class Saudi homebuyers, according to Naveed Siddiqui, chief executive officer of Capitas Group International, a Saudi holding company focused on Islamic finance.

"The financial sector alone in Saudi Arabia will not be able to fill the gap," he said. "The government will have to allow non-banking financial institutions such as mortgage companies to come in to stimulate the market."

The reforms, a package of five separate laws, will overhaul the country's home-finance market including the creation of mortgage providers, the foreclosure process and the oversight of lenders. Regulations required to implement the law will be issued within three months, Saudi Arabia's finance minister Ibrahim al-Assaf said in comments published by the Saudi Press Agency.

The changes are designed to ease the concerns of lenders discouraged by unclear regulation that can lead to lengthy court disputes. Currently the majority of mortgages are provided by the state's Real Estate Development Fund, which offers interest-free loans to low-income buyers. The fund has a default rate of 30 percent, Director General Muhammad Al-Abdani said in an interview yesterday.

Click here for more


Arab News - CGI on the Saudi Mortgage Law (July 4, 2012) - Excerpts

JEDDAH: KHALIL HANWARE | Arab News taff
Wednesday 4 July 2012

Saudi stock market hit a five-week high yesterday after the government approved a long-awaited mortgage law. The Tadawul All-Share Index (TASI) surged 143.23 points or 2.12 percent to 6,885.27, its highest finish since May 30. The index has gained 7.3 percent so far this year.

Banks with large retail businesses attracted the most buying on the view that they will be able to attract the most mortgage business through their large branch networks.

Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said: "A number of Saudi banks have been pursuing a deliberate strategy of building their asset base through new focused lending in key growth areas such as mortgages. This initial growth in this area has in part benefited from the ability of banks to serve a low-risk, often pre-screened clientele.

He added: "The mortgage law is a potential game changer in as much as, by putting in place a comprehensive regulatory framework for the market to develop, it will give lenders more comfort to expand lending beyond this relatively limited clientele. At the same time, the growing demand for medium-income housing that mortgages will trigger, will boost property development and credit to real estate companies."

Naveed Siddiqui, CEO of Capitas Group International, said this is a much awaited milestone in the history of the Saudi real estate and housing market. "The mortgage law will pave the way for broader home ownership and a healthier real estate market overall. The guessing game about the Saudi real estate sector is now over. Its growth and stature in the global real estate market is now imminent," Siddiqui said.

The passage of the mortgage law will spur the emergence of a vibrant real estate finance sector that will be truly responsive to customer needs connecting home buyers' demand with housing supply through much needed purchasing power. However, we must watch how these laws will translate into regulations, how the ultimate regulators enforce the laws and manage the sector, and how financiers translate the benefits of the law into better terms and protections for the mass market. 

"The ultimate goal should be for the financial sector to fill the huge gap in funding which amounts to SR 1.2 trillion over 10 years," Siddiqui added.

Click here for more