Saudis queue up for mortgages as kingdom kick-starts market

High school teacher Othman Abdel Jabbar never thought he would be able to own a house in his native Saudi Arabia, where high prices and a lack of mortgage finance meant the resource-rich Gulf state lagged behind its G20 counterparts when it came to home ownership.

But last month, Abdel Jabbar, 36, walked into a one-stop shop set up by the housing ministry to facilitate home ownership. They checked out his finances, directed him to a bank kiosk where he could apply for a government-subsidised mortgage and then to real estate developers to help him find a house.

Two weeks later, Abdel Jabbar came back to sign his mortgage contract for a SR1.3mn ($340,000) home. “It was beautiful,” he said. “They made it easy.”

Saudi Arabia is experiencing a housing and mortgage boom, reflecting a government drive to boost home ownership as part of efforts to shake up the oil kingdom’s economy and its ultraconservative society.

Crown Prince Mohammed bin Salman, the kingdom’s day to day ruler, has adopted an iron-fisted approach, jailing critics and attracting western opprobrium for the murder of journalist Jamal Khashoggi by Saudi agents. But the government’s broader reforms, which have included ending restrictions on women driving and on entertainment, have won him support among a young population that makes up his key constituency — and they want jobs and homes.

“It makes sense even in a more challenging economic environment to keep prioritising housing. Domestically this is a core issue,” said Karen Young, the director of the economics and energy programme at the Middle East Institute think-tank.

The world’s largest oil exporter, Saudi Arabia for decades had relatively low home ownership rates — just 47 per cent in 2016, compared with more than 60 per cent across the UK and US. Most people rented or lived with their families. Government housing grants were available, though would-be buyers used to wait for a decade, sometimes two to get them.

Row of villas under construction in the Saraya al Narjes development project in north Riyadh
Row of villas under construction in the Saraya al Narjes development project in north Riyadh © Samer Al-Atrush/FT

Under Islamic law, the payment or receipt of interest is frowned upon and regulation allowing mortgages was not passed until 2012. Since the government unveiled a target of 70 per cent home ownership in 2016 — as part of broader plans to transform the country economically and socially by 2030 — it has risen to more than 60 per cent, almost on a par with the US and the UK. Mortgages have ballooned from nothing a decade ago into a $124bn industry with about 870,000 contracts signed, according to housing ministry figures.

Analysts say it has been one of the more successful aspects of Riyadh’s ambitious plans, known as Vision 2030. Some better known projects, such as the much-derided $500bn plan to build the futuristic Neom city on the Red Sea coast, are well behind schedule.

“It’s one of the few objectives of Vision 2030 that’s on track and it is really a function of that they’ve managed to pump money into the system with the co-operation of the banks,” said Tarek Fadlallah, chief executive of the Dubai-based Nomura Asset Management.

Applicants to the housing ministry’s Sakani programme, which offers subsidised mortgages, must be first-time buyers with families. They can download the housing ministry’s app, or visit one of its centres in person. The government undertakes to pay off interest on loans up to SR500,000, and exempts buyers from real estate taxes. The borrower pays interest on loans greater than that amount.

New towns are quickly taking shape north of the capital Riyadh. In one project dubbed Murcia, the state-run National Housing Company has built rows of new villas, painted grey and yellow and priced between SR560,000 and SR1mn. When it is complete, it will be a sprawling suburb bisected by a canal, with gardens and a shopping boulevard.

The growth in mortgages has been so high that when one of the kingdom’s most senior mortgage financiers meets foreign investors, he hears concerns that it is a bubble set to burst. The increase in demand has contributed to a rise in villa prices in Riyadh by 18.6 per cent, and apartments by 20 per cent, the fastest growth in five years, according to a Knight Frank report.

Fabrice Susini, chief executive of the government-owned Saudi Real Estate Refinance Company, said: “The growth of the market . . . is staggering. But when I say that to mostly international investors when we start discussing the mortgage market, they are sometimes frightened by the numbers, because it is unheard of having a market that over four years grows [this fast]. But people have to take a step back and to realise that we are starting from a very low point.”

To boost the mortgage market, the government turned to its sovereign Public Investment Fund, which is chaired by Prince Mohammed and oversees many of the 2030 projects. The SRC, which provides liquidity to the banks through the sale of mortgage-backed securities, is a PIF company, as is Roshn, one of the main housebuilders.

In effect, the government created what Susini described as an “ecosystem” to kick-start a housing market.

A computer graphic of the futuristic Neom city on the Red Sea coast
Some of Riyadh’s ambitions have been less successful. The $500bn plan to build the futuristic Neom city on the Red Sea coast is well behind schedule © Neom

As with other PIF and government-driven projects, some in the private sector complain they are being pushed aside. Others counter that, left to its own devices, the private sector would not deliver quickly enough. “The reality is that if PIF were not there, who would do it or how long would it take,” Susini said.

Some analysts have warned of risks to the banks of increased mortgage lending. Retail loans amounted to 42 per cent of the loan book, up from 28 per cent in 2009, according to a March 2022 JPMorgan report. Mortgages accounted for 49 per cent of retail loans made in 2021, up from 25 per cent of the retail loans in 2016.

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

Ahmed Majrashi, a retired military man who works in a hotel, said he was driving when he received a call to inform him that his mortgage application was accepted for a property in Yanbu. “I thought, me, own a house? Impossible. I parked the car and prostrated to God in thanks,” he recalled.

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