Complex Made Simple

Home sweetened home: How the Saudi government is enticing home buying

It’s not that Saudis are not ready to buy a home, but rather that there has not been enough opportunities to choose from, or the price was not right or simply they can’t afford it.

Some of this is about to change, as Saudi launches a brand new program aimed at decentralizing real estate.

Today, around 50% of Saudi homes are owned, said a recent study by the General Authority for Statistics.

However, Saudi authorities are trying to increase Saudi citizen home ownership from 50% to 60% by 2020 largely through increased private-sector participation.

Let it be a headache for the private sector.

The private sector welcomes this headache.

Banks are active partners

Al Rajhi Bank, for instance, vowed to develop the housing market until the end of the decade, its chief executive told the Reuters Middle East Investment Summit in 2016.

Al Rajhi announced it had agreed with the Ministry of Housing to become the first Saudi bank to participate in a new government scheme to increase home ownership, according to media reports.

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“It will offer mortgages with the state funding part of the down-payment,” they said.

Meanwhile, the Ministry of Housing has teamed up with Banque Saudi Fransi (BSF) less than a year ago to sign an agreement between the state-owned Real Estate Development Fund (REDF) and the BSF for housing finance.

The agreement stipulates the bank to participate in the subsidized housing loan programs provided by the REDF.

Around 1.2 million eligible Saudi citizens will benefit from the housing finance.

Also, Saudi Arabia’s central bank lifted the maximum loan-to-value rate for mortgages at the beginning of this year for first-time homebuyers to 90% from 85% in an effort to stimulate mortgage lending.

“Raising the maximum limit of the percentage of financing of the value of the first house for citizens will contribute to supporting the growth of the real estate financing sector,” the Saudi Arabian Monetary Authority (SAMA) said in a statement on its website.

Mortgage market plan


Bloomberg News revealed that Saudi Arabia plans to spend 120 billion riyals ($32 billion) on subsidized home loans for borrowers, as it seeks to create conditions for an expanded private-sector role in a mortgage market dominated by the government.

It quoted Housing Minister Majed Alhogail as saying that the program also includes SR18 billion ($4.8 bn) loan-guarantee system to boost access to funding as well as SR12.5 billion to support home down-payments to be spent through to 2030.

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Authorities are looking to expand the mortgage market by 70% to reach SR502 billion.

Currently, the government provides 65% of home loans.

“We want to change that completely,” Alhogail told Bloomberg. “It’s a very generous program. It’s enabling the private sector, reducing their risk to a certain level.”

Sakani 2018 program

According to Asharq Al-Awsat, the housing ministry launched lately the first batch of the Sakani 2018 program with 19,481 housing products offered to the beneficiaries.

Sakani 2018 program includes a total of 300,000 housing and financing products provided across the Kingdom.

It said that the products comprise 125,000 residential units offered in partnership with the private sector and 75,000 developed residential plots of land offered free-of-charge, in addition to 100,000 financing products subsidized through banks, and financial institutions.

Increasing home ownership in Saudi Arabia is good news.

But what prompted the government to think of such a plan?

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Affordability is an issue

According to consultants JLL, supply of houses has increased in the kingdom while the issue of affordability remains.

Its latest report on the Saudi real estate market said nearly 19,500, mostly stand-alone units, were completed in the Saudi capital city in 2017.

This brings the total residential stock to 1.2 million units, JLL said, adding that the market is expected to witness the completion of a further 20,000 units in 2018 and 19,000 units 2019 respectively.

Meanwhile, a recent study by real estate consultant Knight Frank says that apartment prices in Riyadh leapt by up to 36% last year and are set to rise again this year.

It said that the volume of residential transactions increased by 15% in Riyadh but their value was down 3% on average. In Jeddah, volume was flat but value dropped 21%, while in Eastern Province volume fell slightly (2% down) and value slipped by 9%.

Also, a study by International Policy Digest, a foreign policy website, states that almost a third of Saudis are under the age of 15 and more than half are under 25, so keeping up a steady flow of affordable housing is a demographic battle that only grows increasingly challenging over time.