Mortgage Market in Saudi Arabia: Overview and Trends
The mortgage market in Saudi Arabia has been experiencing significant growth in recent years. The government’s Housing Vision Realization Program, which aims to increase homeownership for citizens to 70% by 2030 and to raise the total mortgage loans to SAR502 billion by end-2020, has been a driving force behind this growth. This program has increased the number of mortgages being issued and the size of the mortgage market.
The mortgage market in Saudi Arabia has traditionally had relatively low homeownership rates, with just 47% in 2016, compared with more than 60% across the UK and the US. To address this issue, the government has turned to the mortgage market to boost homeownership rates. This has led to a surge in demand for mortgages, which has led to an increase in the number of lenders in the market.
The Saudi mortgage market is highly concentrated, with three banks, Al Rajhi Banking & Investment Corp., National Commercial Bank, and Riyad Bank, having an estimated market share above 60%. However, funding from the Saudi Real Estate Refinance Co. is helping to bolster smaller lenders in the market. The residential mortgage market in Saudi Arabia is projected to proceed to grow at a CAGR of 16.3% from 2023 to 2028, which will present opportunities for both lenders and borrowers.
Overview of the Saudi Mortgage Market
The mortgage market in Saudi Arabia has undergone major changes in recent years, driven by government initiatives to increase homeownership among citizens. This section provides an overview of the historical perspective, current market dynamics, and key financial institutions in the Saudi mortgage market.
Historical Perspective
The Saudi mortgage market has traditionally been underdeveloped, with homeownership rates among the lowest in the world. However, this has changed recently, with the government launching various initiatives to boost the market. The Housing Vision Realization Program under Saudi Vision 2030 sets a target to increase homeownership for citizens to 70% by 2030 and to raise the total mortgage loans to SAR502 billion by end-2020.
Current Market Dynamics
The Saudi mortgage market is currently dominated by key financial institutions, including Riyad Bank, Al Rajhi Bank, and National Commercial Bank. These institutions hold a significant market share and are crucial in financing homebuyers. The Saudi Real Estate Refinance Co. (SRC) also plays an important role in the market, providing liquidity to banks and other financial institutions.
Mortgage affordability is a critical issue in the real estate market. The Saudi Ministry of Housing has been actively working to address the demand for more affordable homes as it works towards its 70% homeownership target by 2030. To bolster homeownership among nationals, a new mortgage guarantee services firm called “Dhamanat” was established in 2021.
Key Financial Institutions
Riyad Bank, Al Rajhi Bank, and National Commercial Bank are the leading financial institutions in the Saudi mortgage market. Riyad Bank offers a range of mortgage products, including fixed-rate and adjustable-rate mortgages. Al Rajhi Bank is the largest Islamic bank in the world and offers Shariah-compliant mortgage products. National Commercial Bank is the most spacious bank in Saudi Arabia and offers customers a range of mortgage products.
In conclusion, the Saudi mortgage market has undergone major changes in recent years, driven by government initiatives to increase homeownership among citizens. At present, the market is dominated by a few key financial institutions that play a crucial role in financing homebuyers. The Saudi Real Estate Refinance Co. (SRC) also plays an important role in the market, providing liquidity to banks and other financial institutions.
Government Role and Vision 2030
The Saudi Arabian government has played a significant role in the mortgage market to achieve its Vision 2030 targets. The Housing Vision Realization Program under Saudi Vision 2030 sets a target to increase homeownership for citizens to 70% by 2030 and to raise the total mortgage loans to SAR502 billion by end-2020. To achieve these targets, the government has implemented various initiatives and programs.
Vision 2030 Targets
The Vision 2030 initiative aims to transform the Saudi Arabian economy and society by reducing dependence on oil revenues and broadening the economy. The housing sector is a crucial component of this initiative, with the government aiming to increase homeownership rates and improve access to affordable housing.
National Transformation Plan
The National Transformation Plan (NTP) is a comprehensive plan that outlines the government’s strategy to achieve the Vision 2030 targets. The NTP includes various initiatives and programs to improve the housing sector, such as establishing the Real Estate Development Fund (REDF) and introducing regulations to promote affordable housing.
Public-Private-Partnership Initiatives
The government has also implemented several public-private partnership initiatives to improve the housing sector. For instance, the government has collaborated with private developers to build cost-effective housing units and provide financing to homebuyers. Additionally, the government has launched several initiatives to improve access to mortgage financing, such as the introduction of the Real Estate Mortgage Law and the establishment of the Saudi Credit Bureau.
Overall, the government’s initiatives and programs have played a significant role in transforming the mortgage market in Saudi Arabia. Government-led projects and public-private-partnership initiatives have improved access to affordable housing and mortgage financing, bringing the country closer to achieving its Vision 2030 targets.
Regulatory Framework
Mortgage Law and Regulations
The Saudi Arabian mortgage market has undergone significant changes in the last decade to increase the regulatory framework along with improving access to financing. One of the most significant measures was the introduction of the Real Estate Mortgage and Financial Laws, a package of related legislation comprising five laws, announced in 2012. These laws provide the legal framework for the mortgage market in Saudi Arabia.
The mortgage law in Saudi Arabia is designed to protect both lenders and borrowers. It sets out the terms and conditions for granting mortgage loans, including the maximum amount borrowed, the interest rate, and the repayment period. The law also regulates the foreclosure process and sets out the procedures to follow if a borrower defaults on their mortgage payments.
Besides the mortgage law, other regulations govern the mortgage market in Saudi Arabia. These include regulations governing the licensing of mortgage providers, the registration of mortgages, and the disclosure of information to borrowers.
Saudi Arabian Monetary Authority Oversight
The Saudi Arabian Monetary Authority (SAMA) is the central bank of Saudi Arabia and is responsible for overseeing the mortgage market in the country. SAMA has issued new mandatory instructions to both banks and financing companies related to residential mortgages in the kingdom. These instructions seek to protect all parties’ rights and enable better access to financing.
SAMA’s oversight of the mortgage market includes monitoring compliance with the mortgage law and other regulations, supervising mortgage providers, and ensuring that borrowers are treated fairly. SAMA also guides mortgage providers on best practices and issues regulations to ensure the mortgage market operates safely and soundly.
Overall, the regulatory framework for the mortgage market in Saudi Arabia is designed to protect both lenders and borrowers and ensure that the market operates safely and soundly. The mortgage law and SAMA’s oversight are crucial in achieving these objectives.
Consumer Mortgage Products
Residential Mortgages
In Saudi Arabia, individuals can obtain residential mortgages from banks and other financial institutions. These mortgages are designed to help individuals purchase their own homes. The terms and conditions of these mortgages vary depending on the lender, but they largely require the borrower to make a down payment and repay the loan over a fixed period. Some lenders may also require the borrower to have a certain credit score or income level to qualify for a residential mortgage.
Refinance Options
Refinancing a mortgage in Saudi Arabia is an option for those who want to lower their interest rates or monthly payments. Some banks and financial institutions offer refinancing options for existing mortgages. However, it is important to carefully consider the terms and conditions of any refinancing agreement before signing on the dotted line. Borrowers should also know that refinancing may incur additional fees.
Loan Terms and Interest Rates
The terms and interest rates of mortgages in Saudi Arabia vary depending on the lender and the borrower’s creditworthiness. Generally, mortgages in Saudi Arabia have fixed interest rates for a certain period, after which the rate may be adjusted based on market conditions. Loan terms can differ from 5 to 30 years, and borrowers may be required to pay up to 30% of the property’s value down payment.
In summary, the mortgage market in Saudi Arabia offers a range of consumer mortgage products, including residential mortgages and refinancing options. Borrowers should carefully consider the terms and conditions of these products before making a decision. Loan terms and interest rates vary depending on the lender and the borrower’s creditworthiness.
Home Ownership Trends
Affordability and Accessibility
The Saudi Arabian mortgage market has changed significantly over the past decade. With the government’s efforts to increase homeownership to 70% by 2030, the focus has shifted to making home ownership more affordable and accessible to citizens. According to a report by Knight Frank, apartments have emerged as a more realistic option from an affordability perspective. This has resulted in a surge in demand for apartments and a decline in demand for larger and more expensive properties.
The Saudi Ministry of Housing has been actively working to address the demand for more affordable homes. The government has introduced various initiatives and programs to make homeownership accessible to citizens. For instance, the government has reduced the waiting time for loans and increased the loan-to-value ratio for first-time home buyers. Additionally, the government has provided subsidies and incentives to developers to build more cost-effective housing units.
Expat and Foreign Ownership
Foreign property ownership in Saudi Arabia is limited to certain areas and is subject to strict regulations. However, the government has recently introduced new measures to make it easier for ex-pats to own property in the country. Ex-pats can now own property in designated areas, subject to certain conditions. For instance, the property must be used for residential purposes only, and the ex-pat must have a valid residency permit.
Despite these measures, ex-pat property ownership in Saudi Arabia remains relatively low. This is partly due to the high cost of property in the country and the limited availability of affordable housing units. However, with the government’s efforts to increase homeownership and make property more affordable, it is expected that ex-pat ownership of property in the country will increase in the coming years.
In conclusion, the Saudi Arabian mortgage market has significantly changed in recent years, focusing on making home ownership more affordable and accessible to citizens. The government has introduced various initiatives and programs to achieve this goal, and it is expected that the trend towards more affordable housing will continue in the coming years.
Market Analysis and Trends
Transaction Volumes and Values
The mortgage market in Saudi Arabia has been growing steadily over the years, with a significant increase in transaction volumes and values. According to a report by Deloitte US, the total mortgage loans in Saudi Arabia increased from SAR 290 billion in 2018 to SAR 502 billion by the end of 2020, representing a 73% increase. The report also indicates that the Housing Vision Realization Program under Saudi Vision 2030 aims to increase homeownership for citizens to 70% by 2030.
Impact of COVID-19 on the Market
The COVID-19 pandemic has significantly impacted the mortgage market in Saudi Arabia. The pandemic has led to a slowdown in the economy, causing a decline in property prices and a reduction in the demand for mortgages. However, the Saudi government has implemented measures to support the real estate sector, including reducing interest rates and launching the “Sakani” program to provide affordable housing to citizens.
Forecast and Future Developments
Despite the influence of the pandemic, the mortgage market in Saudi Arabia is expected to continue growing in the coming years. A report by ResearchAndMarkets forecasts that the Saudi Arabia residential mortgage market size will reach USD 82.23 billion by 2028, growing at a CAGR of 16.3% from 2023 to 2028. The report also indicates that the demand for rental properties is increasing, driven by both affordability challenges and the increasingly transient nature of the population.
The Saudi government is expected to continue implementing measures to support the real estate sector, including developing affordable housing and reducing interest rates. Additionally, the government is expected to continue promoting the use of technology in the mortgage market to increase efficiency and transparency.
Overall, the mortgage market in Saudi Arabia is expected to proceed to grow, driven by the government’s efforts to increase home ownership and the increasing demand for rental properties.
Real Estate Sectors Analysis
Residential Sector
The residential sector in Saudi Arabia has been growing steadily over the past few years. According to a report by Saudi Arabia Real Estate Market Review Q4 2023, the average rent for Riyadh’s Grade A offices increased by 13.0% yearly, reaching SAR 1,933 per square meter. Jeddah’s Grade A offices saw their average rent improve yearly by 19.7%, arriving at SAR 1,406 per square meter. The Saudi Arabia Residential Real Estate Market size is estimated at USD 187.20 billion in 2024. It is expected to reach USD 284.90 billion by 2029, growing at a CAGR of 8.77% during the forecast period (2024-2029).
Office Market Trends
The office market in Saudi Arabia has seen a positive trend in recent years. The Purchasing Manager Index (PMI) for Saudi Arabia scored 57.5 for December. Saudi Arabia’s office sector figures and occupier demand remained secure over the last remaining quarter of 2022. This was especially so in Riyadh, where stock levels remain anemic at.
Industrial and Commercial Spaces
The industrial and commercial spaces market in Saudi Arabia has also been expanding. The Saudi Arabia Real Estate Market size is expected to grow from USD 64.43 billion in 2023 to USD 94.19 billion by 2028, at a CAGR of 7.89% during the forecast period. The total value of transactions for residential properties has declined at a slower rate during the same period, slipping by 28%. The country has a population of 36.4 million, growing by more than 1.4% annually in 2022.
In summary, the real estate market in Saudi Arabia is showing positive growth in all sectors, including the office market, industrial market, and residential market. The country’s population growth and strong occupier demand are contributing factors to the growth of the real estate market.
Financing and Liquidity
Lending Institutions
The Saudi Arabian mortgage market is dominated by commercial banks, with the top five holding over 60% of the market share. In addition to commercial banks, there are also specialized mortgage finance companies that cater to specific segments of the market. The Saudi Real Estate Refinance Company (SRC), also known as “Fannie Mae of Saudi Arabia,” was established in 2017 to provide liquidity to mortgage finance companies and smaller banks.
Mortgage Contracts and Securities
Mortgage contracts in Saudi Arabia are typically structured as fixed-rate, fully amortizing loans with maturities ranging from 5 to 30 years. The financed property secures the contracts, and the borrower must make a down payment of at least 20% of the property’s value. Mortgage-backed securities (MBS) are issued by mortgage finance companies and sold to investors, providing an additional source of liquidity to the market.
Liquidity Management
Liquidity management is a key concern for lenders in the Saudi Arabian mortgage market. The SRC was established to provide liquidity to mortgage finance companies and smaller banks, reducing their reliance on commercial banks for funding. In addition, the Saudi Arabian Monetary Authority (SAMA) has introduced multiple measures in the last decade to strengthen the regulatory framework and improve access to financing.
To manage liquidity risk, Saudi Arabian mortgage market lenders typically use a combination of short-term and long-term funding sources. Short-term funding sources include deposits and interbank borrowing, while long-term funding sources include MBS issuance and securitization.
Overall, the Saudi Arabian mortgage market has grown majorly in recent years, driven by strong demand and government initiatives to increase homeownership. While liquidity management remains a key concern, establishing the SRC and regulatory reforms by SAMA have helped improve access to financing and reduce reliance on commercial banks for funding.
Challenges and Opportunities
Asset Risk and Credit Quality
The Saudi mortgage market faces asset risk and credit quality challenges. As the market grows, lenders must maintain a balanced portfolio that minimizes risk. The Saudi Arabian Monetary Authority (SAMA) has implemented regulations to ensure lenders maintain adequate capital levels and prudently underwrite loans. However, given the relative newness of the market, there is a risk that lenders may become too aggressive in their lending practices, which could lead to a decline in credit quality.
Innovative Financing Models
Innovative financing models offer opportunities to expand access to mortgage credit in Saudi Arabia. The Saudi government has launched several initiatives to boost home ownership, including the “Sakani” program, which aims to provide cost-effective housing to low- and middle-income families. In addition, the government has established the Real Estate Development Fund (REDF), which provides financing to individuals and developers for the construction and purchase of homes.
International Comparisons
Saudi Arabia can learn from the experiences of other countries that have developed successful mortgage markets. For example, Fannie Mae, the US government-sponsored enterprise, is a key player in the US mortgage market. Fannie Mae provides liquidity to the market by purchasing mortgages from lenders and wrapping them into securities sold to investors. This model has helped to expand access to mortgage credit in the US, and a similar approach could be adopted in Saudi Arabia.
Overall, the Saudi mortgage market faces asset risk and credit quality challenges, but innovative financing models and international comparisons offer growth opportunities. Lenders must maintain prudent underwriting practices and a balanced portfolio that minimizes risk. The Saudi government’s initiatives to boost home ownership, such as the Sakani program and the REDF, are positive steps toward expanding access to mortgage credit. By learning from the experiences of other countries, such as Fannie Mae in the US, Saudi Arabia can develop a robust and sustainable mortgage market that benefits both lenders and borrowers.
Economic and Social Impact
Housing Supply and Demand
The mortgage market in Saudi Arabia has significantly impacted the housing supply and demand. The increase in the availability of mortgage loans has led to a surge in housing demand, increasing housing prices. However, this has also led to increased construction of new housing units to meet the growing demand. The government has also taken measures to increase the housing supply, including constructing affordable housing units and introducing new regulations to encourage real estate investment.
Employment and Business Activity
The mortgage market has also positively impacted employment and business activity in Saudi Arabia. The increase in housing construction has led to an increase in demand for labor, which has created new employment opportunities in the construction industry. Additionally, the mortgage market has increased business activity in the real estate sector as more investors are willing to invest.
Infrastructure and Super Cities
The mortgage market has also played a significant role in developing infrastructure and supercities in Saudi Arabia. The government has launched several mega infrastructure projects, such as the King Abdullah Economic City and the Neom project, which are expected to attract significant investment in the real estate sector. The mortgage market has made it easier for investors to finance these projects, which has led to their rapid development.
In conclusion, the mortgage market in Saudi Arabia has had a significant impact on the housing supply and demand, employment and business activity, and infrastructure and super cities. The government’s efforts to promote the mortgage market have led to increased real estate investment and the development of new housing units and infrastructure projects.
Investment Landscape
Foreign Business Investment Licenses
Saudi Arabia’s mortgage market has seen a significant boost in recent years, driven partly by a surge in foreign business investment licenses. According to data from the Saudi Arabian General Investment Authority (SAGIA), the number of foreign business investment licenses issued in the country reached a record high in 2021. This indicates the growing interest in the Saudi Arabian market from overseas investors.
Real Estate Advisory Services
The private sector has also played a key role in developing the mortgage market in Saudi Arabia, with real estate advisory services providing valuable support to lenders and borrowers. These services have helped to streamline the mortgage application process, making it easier for consumers to access the financing they need to purchase a home.
Real estate advisory services have also helped to improve transparency in the mortgage market, providing consumers with greater visibility into the terms and conditions of their loans. This has helped build trust between lenders and borrowers, essential for the market’s long-term success.
Overall, the investment landscape in Saudi Arabia’s mortgage market is highly favorable, with a range of factors driving growth and development. From foreign business investment licenses to real estate advisory services, many entities are working together to support the market’s growth and ensure that consumers can access the financing they need to purchase a home.
Frequently Asked Questions
What are the eligibility criteria for ex-pats seeking home finance in Saudi Arabia?
Ex-pats seeking home finance in Saudi Arabia must have a valid residency permit and a stable source of income. The minimum age requirement is 21 years, and the maximum age limit is 60 years. The applicant’s monthly income should be at least SAR 10,000, and the loan amount should not exceed 70% of the property value.
How do I calculate monthly mortgage payments in Saudi Arabia?
Monthly mortgage payments in Saudi Arabia are calculated based on the loan amount, the interest rate, and the loan term. Most banks offer online mortgage calculators to help you estimate your monthly payments. Alternatively, you can use a mortgage payment formula to calculate your payments manually.
Can expatriates own property in Saudi Arabia, and what are the conditions?
expatriates can own property in Saudi Arabia, but certain conditions must be met. The property must be located in an area designated for foreign ownership, and the expatriate must have a valid residency permit. Additionally, the property must be used for residential purposes only and cannot be rented out.
What are the current trends in the Saudi real estate market?
The Saudi real estate market has been growing steadily in recent years, driven by government initiatives to increase home ownership and improve access to financing. The COVID-19 pandemic has had a limited impact on the market, with demand for residential properties remaining strong. The market is expected to grow in the coming years, with increasing demand for affordable housing.
What types of home loans are offered by Saudi British Bank (SABB)?
SABB offers a range of home loan products to suit the needs of different borrowers. These include fixed-rate mortgages, variable-rate mortgages, and Islamic home financing. The bank also offers additional services like home insurance and mortgage protection.
How does Banque Saudi Fransi structure its home loan products?
Banque Saudi Fransi offers a range of home loan products, including fixed-rate mortgages, variable-rate mortgages, and Islamic home financing. The bank also offers additional services like home insurance and mortgage protection. The bank’s home loan products are designed to be flexible and customizable, allowing borrowers to choose the loan term and repayment schedule that best suits their needs.
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