Saudi home lending is growing at its fastest pace in four years as the government pumps US$67 billion (Dh246.08bn) into the construction of 500,000 new homes across the kingdom.
Property financing soared 83 per cent to about 48bn riyals (Dh47.01bn) during the second quarter, compared with a year earlier, according to central bank data.
The housing market has emerged as a big beneficiary of a massive infrastructure programme aimed at reducing unemployment in Saudi Arabia, where about 40 per cent of 16 to 24-year-olds do not have a job.
At the same time, public-sector pay increases have also boosted spending power.
The government has approved a new mortgage law that is expected to spur further investment in the market when the legislation comes into full effect.
It will formalise the rights of buyers and banks in a sector that has not traditionally relied on bank lending.
"Despite the well-documented difficulties in obtaining mortgage finance, average villa prices increased across all parts of Riyadh in the first half of 2012," said Mike Williams, a senior director at CBRE based in Bahrain said in a report released yesterday.
Only 35 per cent of Saudis own their own home, while demand from low and middle income families accounts for about 80 per cent of current demand, according to estimates from Alpen Capital.
Riyadh rents grew at about 10 per cent per year in the first half, outpaced by apartment rents that gained by as much as 15 per cent, CBRE data shows.
"Housing has become a government priority," Jarmo Kotilaine, the chief economist at National Commercial Bank in Jeddah, told Bloomberg yesterday. "The fact that it's so central to the government's policy actions means that in general banks feel comfortable going into this space. Home financing is also an underdeveloped market and banks can build their assets in this area."