Saudi mortgage provider set up to boost home ownership

The Saudi Arabian government is joining forces with a Jeddah-based bank to set up a new mortgage lender in an attempt to boost home ownership in the country.

Bidaya Home Finance, a joint venture between the Saudi ministry of finance’s Public Investment Fund and Jeddah-based Islamic Corporation for the Development of the Private Sector, a unit of the Islamic Development Bank, was launched yesterday to provide Sharia-compliant mortgages for Saudis.

The company, which hopes to simplify Saudi Arabia’s long and cumbersome mortgage process, to enable wider levels of home ownership in the kingdom, will begin operations with a capital of 900 million Saudi riyals (Dh881.2m).

Bidaya was granted a mortgage finance licence by the Saudi Arabian Monetary Agency (Sama) last month, making it the first newly established real estate finance company to get such a licence. Saudi Arabia has long suffered from a lack of affordable housing. According to JLL there is a shortfall of about 400,000 afford­able units across the coun­try, while just 30 per cent of Saudis own their own homes compared with a global average of 70 per cent.

Hardly any parts of either Riyadh or Jeddah had homes deemed “affordable” for middle-income families – households earning between 6,000 and 20,000 riyals per month, or 62 per cent of the population.

“Bidaya was established with the primary purpose of enabling home ownership,” said Khaled bin Mohammed Al Aboodi, the chairman of Bidaya Home Finance. “Our role as a facilitator will aim to address the economic and social issue by increasing access to finance for middle-income home buyers, and thereby significantly contributing towards the sustainability of the housing sector in the kingdom.”

This week, property broker JLL reported that thousands of Saudis hoping to buy their own homes are being forced to rent because they can’t afford to put down the large deposits required by new government regulations.

Housing rents in the Saudi capital Riyadh grew by 6 per cent in the year to November. In Jeddah, the kingdom’s second-largest city, rents rose by 11 per cent over the same period as would-be buyers were forced to rent.

According to JLL, villa prices in Riyadh fell by 6 per cent last year. In Jeddah, although prices increased by an average of 6 per cent, this came from a very low base.

JLL said that the reason for the changes was a government move in November 2014 to cap loan-to-value ratios on mort­gages.

It means that buyers need a 30 per cent down payment in a market where most people cannot afford their own home.

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