The Saudi central bank early this year increased the maximum loan-to-value ratio for mortgages to 85 per cent, from 70 per cent, for real estate finance companies. Waseem Obaidi for The National
The Saudi central bank early this year increased the maximum loan-to-value ratio for mortgages to 85 per cent, from 70 per cent, for real estate finance companies. Waseem Obaidi for The National

Riyadh housing prices expected to rise after two years of decline



House prices in the Saudi capital Riyadh seem to have bottomed out after the government took steps to ease the effect of strict mortgage caps introduced about two years ago.

According to the property broker JLL, both house and villa prices remained relatively stable compared with the previous quarter, as the government eased strict rules capping loan-to-value ratios on mortgages.

JLL said it expected house prices in the kingdom’s largest city to rally after about two years of falls following government moves to ease the rules introduced in November 2014, which meant buyers needed a 30 per cent down payment in a market where most people cannot afford their own home. Currently, just 30 per cent of Saudis own their own homes compared with a global average of 70 per cent.

Earlier this year, the Saudi Arabian Monetary Agency (Sama) increased the maximum loan-to-value ratio for mortgages from 70 per cent to 85 per cent for real estate finance companies.

Although these companies represent a small portion in comparison to local banks, JLL predicted that the move would make housing more affordable and help to strengthen demand.

“This move should help re-energise the market and help reverse the recent slowdown in sales,” said Jamil Ghaznawi, the national director and country head of JLL KSA. “In the residential market, sales prices have bottomed out as prices stabilise for the first time since the introduction of the mortgage regulations.”

However, JLL said that average villa prices were still 6 per cent lower than they had been a year earlier, while apartment prices were 4 per cent lower than the first quarter last year.

According to the ministry of justice, although the number of house sales in the city continued to fall during the first three months of the year, the volume of sales only declined by 6 per cent compared with the previous year, the lowest fall in the number of transactions since the introduction of the mortgage regulations.

On Monday the Saudi government announced plans to restructure the country’s housing ministry in an attempt to enable more Saudi citizens to buy homes. In a television interview to discuss the country’s ambitious National Transformation Plan, the deputy crown prince Mohammed bin Salman said the move was part of an overall plan to boost the country’s economy during an era of cheap oil. The prince did not give further details of how the ministry was to be restructured, or how many more Saudis would be able to buy homes as a result of the changes.

According to local property agents, there is a shortfall of about 400,000 “affordable” homes across the country, that is, housing accessible to households earning between 6,000 and 20,000 Saudi riyals (Dh19,588) a month, or 62 per cent of the population.

They said that hardly any parts of the country’s two biggest cities, Riyadh and Jeddah, had homes that fell into this category and the situation was likely to worsen as the population continues to grow.

lbarnard@thenational.ae

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Director: Laxman Utekar

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