Rising house prices and a shortage of affordable housing have put buying a home beyond the reach of middle-income Saudis. The World Bank estimates the kingdom will need at least another 200,000 units per year to narrow the gap. Wael Mahdi, foreign correspondent, reports JEDDAH // Adel al Ghamdi had been paying rent on an apartment in Jeddah's Al Bawadi district for more than six years before he finally decided the time was right to buy his own home.
But the IT manager, 31, found paying for his property a far more expensive and difficult proposition than he had ever imagined. After an extensive househunt, Mr al Ghamdi eventually found a nine-unit property made up of three to four bedroom flats, hoping to finance his purchase by renting out the spare flats to tenants. "I needed to take a significant loan from the bank to buy the apartment building of my dreams," said Mr al Ghamdi. "I'll reside in some of the units with my family, and the rest will be rented to generate an income to help me pay for the loan."
Rising house prices in the kingdom, especially Jeddah, are pushing property ownership beyond the reach of most middle-income Saudis. The lack of affordable housing has become a major headache for the government in a country where an annual population increase of 2.5 per cent is piling a huge burden on state finances. The International Finance Corp, the private sector arm of the World Bank, is one of the institutes trying to narrow the affordability gap.
It estimates the Saudi market needs 200,000 extra residential units per year to narrow the shortage of homes for the growing population. Two years ago, the corporation, known as the IFC, launched a company with Saudi investors in Riyadh, the capital, to finance homes for middle-income buyers. "In two years we spent one billion riyals [Dh979 million] to finance 1,800 units for both Saudis and non-Saudis with middle incomes," said Walid al Murshed, the IFC's manager for Saudi Arabia.
"This is a large number for a start-up company." The venture, Saudi Home Loans Co (SHL), will provide finance to 15,000 homes for middle-income families by 2020, with 5,000 of those to be financed in the coming three years alone, he said. SHL, which was established in 2007 with capital of $533 million, is a joint venture between the IFC, Arab National Bank, Saudi Arabia's Dar Al-Arkan Real Estate Development Co and Kingdom Installment Co. Mr al Murshed, however, said this was not enough to narrow the country's housing shortfall.
"There is a huge shortage of middle-income housing in the country, and banks and other lenders don't have the ability to provide long-term finance," Mr al Murshed said. "We don't give big loans like a bank. The average loan we give is around 500,000 riyals. "This suits the ability and the need of people with middle incomes. "Banks don't give housing loans of less than a million riyals, and that makes many people hesitant."
Borrowers face enourmous difficulties securing loans as the requirements are too demanding for most to meet. "Banks need a lot of guarantees to issue the loans, and in many cases the issuing bank requires the applicant to transfer his personal bank account over [to the issuing bank]," Mr al Murshed added. SHL was set up to help more people buy homes, and as such has less rigid requirements than banks, although it charges the same interest lenders would pay on a home loan from a bank - around 3.75 per cent.
"We have larger risks than banks as we accept all types of workers, even those who are self-employed. And we don't ask people to transfer their personal accounts to our banking partner, Arab National Bank," Mr al Murshed added. "We also give loans to non-Saudis, although according to the law, they can't register the property under their names." When a non-Saudi buys a house, the property is registered to SHL until the loan matures. Since this is a long-term investment, expats usually sell their homes when they leave the country. Securing finance to build a home is also fraught with hardship for most middle-income Saudis.
The government is still working on a new mortgage law which officials have insisted for the past two years is in its final stages of approval. On Sunday, the Jeddah-based Okaz newspaper said the legislature had still not agreed on many of its proposed details. As a result, the cabinet sent it back to the country's consultative body, the Shoura council, for further study. Okaz said the cabinet refused to approve many clauses relating to how banks will finance mortgages.
Earlier this year the minister of finance, Ibrahim al Assaf, said the law would be approved by the second quarter of the year. He said securing long-terms funds for lenders would play a greater role in solving the country's housing shortage than passing the mortgage law. "Our company was able to provide a good number of loans to date, without the mortgage law, and we can still do that without the law," Mr al Murshed said.