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Saudi new mortgage approvals rebound

Government initiatives to raise levels of Saudi home ownership have increased the number of mortgage approvals Alamy via Reuters
Government initiatives to raise levels of Saudi home ownership have increased the number of mortgage approvals
  • Saudi mortgage approvals up 18%
  • Still below historic high
  • 60% citizen home ownership target

A greater supply of affordable housing and a growing resignation among prospective house buyers that interest rates are unlikely to fall substantially is helping to propel a rebound in new residential mortgages in Saudi Arabia.

Under Vision 2030, Saudi Arabia set a target to increase home ownership among the kingdom’s adult citizens to 60 percent by 2020 and to 70 percent by the end of the current decade – from 47 percent previously.

The government revamped its mortgage laws and launched various financial schemes to help Saudis clamber onto the property ladder. These initiatives sent mortgage approvals soaring and boosted banks’ earnings.

Yet last year’s total number of new mortgage approvals – 102,583 – was less than half the 2020 peak of 225,073 and the lowest since 2018, data from the Saudi Arabian Monetary Agency (Sama) shows, as soaring interest rates deterred borrowers.

Now, though, there are signs of increasing demand. In March and April combined, 17,405 new residential mortgages worth an aggregate SAR12.9 billion ($3.5 billion) were sold in the kingdom, up 18 and 14 percent respectively on the figures for the prior-year period.

Extrapolating the data for January to April 2024 to the whole year, this would equate to 112,242 new mortgages – up 9 percent on 2023.

Similarly, the combined value of new mortgages would rise 6 percent year on year in 2024 to SAR82.3 billion according to AGBI calculations based on Sama data that includes mortgage-based apartment, house and land purchases.   

The US benchmark interest rate is at a 23-year high of about 5.3 percent and is up from near-zero in early 2022. Saudi Arabia mirrors US interest rates because of the riyal’s dollar peg.

Yet from a historical perspective, current rates are low compared with most periods from the late 1960s to 2008. The ultra-low interest rates during the prolonged aftermath of the global financial crisis and then the Covid-19 pandemic are the exception, not the norm.

“A lot of potential homeowners had been waiting for interest rates to decline, but now many believe rates will remain higher for longer and even if rates do fall eventually, it won’t be to the levels we saw a few years ago,” says Monica Malik, chief economist at Abu Dhabi Commercial Bank.

Prospective Saudi homeowners are “getting used to mortgage rates being higher”, says Malik.

A greater availability of affordable housing is another factor helping new mortgage numbers and aggregate value to rise, she says: “That’s provided a big boost, especially if people believe there’s no benefit to waiting for rates to fall or that any benefit will be relatively small."

The average value of new mortgages was SAR755,830 last year and is on track to be SAR733,507 in 2024, according to AGBI calculations. This metric peaked in 2022 at SAR779,017.

Home ownership was 64 percent in 2023, Abu Dhabi Commercial Bank wrote in a May report citing government data.

There are two types of mortgages available in Saudi Arabia, both of which are sharia-compliant. Murabaha mortgages are closest to conventional mortgages and are cost-plus-financing, with the repayments fixed for the duration of the mortgage.

Ijarah contracts are markedly different, with mortgage holders not gaining ownership of their home until they have fully paid off their loan. As such, Ijarah mortgage holders are tenants in their own property.

Ijarah mortgages can be variable or fixed rate, while the lender – as owner – will be responsible for maintenance, according to the government-owned Saudi Real Estate Refinance Company.

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