Saudi Arabia has eased its real estate and investment laws to allow foreigners residing and working in the kingdom to purchase and own properties there. The move is widely seen as a way to revive the country’s moribund real estate market.
However, at least one economist believes the new measure is unlikely to have much of an impact on the Saudi property market.
John Sfakianakis, chief economist at Banque Saudi Fransi, noted that access to Saudi mortgages remains limited and the new ruling must first obtain approval from the Saudi Cabinet. In addition, even Saudi citizens are having trouble finding affordable properties now.
“I don't think that it will have much of an impact as most expatriates working in Saudi are low-skilled, low-paid workers and their incomes won't permit them to acquire property in Saudi Arabia,” he was quoted as saying. “If Saudis can't locate affordable homes I don't think expats will find it easy to afford property.”
Analysts posit that if the law allowed foreign businesses and companies to own property on Saudi soil, then that might prompt a rally in the local real estate market, given that a great many international firms would like to gain exposure in the kingdom.
Foreign investors would consider purchasing office buildings and retail property as a way of gaining exposure to the Saudi Arabian economy which looks set to lead the Gulf in terms of recovery over the next two to three years, said Stefan Burch of Cluttons real estate agency in Bahrain.
According to research firm RNCOS, less than 35 percent of Saudis currently own their own home, suggesting the need for easier mortgages and home loans. Moreover, the cost of a new mortgage in the country on average represents about 41 percent of a young homebuyer’s monthly income.
Deutsche Bank estimates that at present less than 1 percent of all Saudi residential home purchases are financed by mortgages (versus 66 percent in the United States).
In a report on Bloomberg last October, Abdulaziz Al Salem, a 28-year-old Saudi in the capital city of Riyadh, said “home ownership in this country is nothing short of a nightmare. If you’re not descended from a wealthy family or have an extremely successful business, you probably should give the whole thing a pass.”
In addition, research from Deutsche Bank AG indicates Saudi Arabia, the largest economy in the Middle East, will need 1.2-million new homes by 2015, to meet the demands of a rapidly rising population.
Thus, passage of a mortgage law (which has been in the pipeline for the last decade) by the Saudi legislature would be the key to driving future home sales and providing a lift to the nation’s construction industry.
Capitas Group International estimates that adoption of the mortgage law could lead to the creation of a $32-billion-per-year lending market in the kingdom.