Delay in new Saudi mortgage law

JEDDAH // The 60 per cent of Saudis who do not own their own home will have to wait a little longer before a long-awaited mortgage law passes the Shura Council. The council has postponed discussing the mortgage and property finance legislation, which aims to narrow the shortage of affordable housing, raising doubts the government will be able to apply the law this year.

Saad Mariq, deputy chairman of the council's financial committee, said the council postponed discussion without stating a reason or giving a new date for discussing it. The mortgage law had been scheduled to be discussed on Sunday. It would have been the last time the council discussed the proposed law before submitting it to King Abdullah bin Abdul Aziz for approval, Mr Mariq said. Discussions of four other proposed laws regulating lending to the real estate industry that were on the agenda were also postponed.

The cabinet of the king, who is also the prime minister, sent the proposed mortgage law back to the council recently after it disagreed with provisions approved earlier by the Shura Council, which is an advisory body. Early this year, the minister of finance, Ibrahim al Assaf, said the mortgage law would be approved by legislators by the end of the first quarter. "There are still a lot of points that need to be discussed and approved between the council and the cabinet," said Walid al Murshed, Saudi Arabia's country manager for International Finance Corp, the investment arm of the World Bank. "No one expected to see any approval before the end of the year."

Khalid al Mobaied, general manager at Bassma Real Estate Service Co, said discussing the legislation should take more time to ensure it 100 per cent fully compliant with Sharia law. "This is a very sophisticated legislation and it should take a long time to approve as there are five ministries involved in shaping it," said Mr al Mobaied, who manages properties worth 13 billion riyals (Dh12.7bn). "We need to take out time to make sure that the new system will be sound, and I don't think that we need to rush for its approval," he added. "Look at what happened in the West because of the subprime crisis that was caused by bad mortgages."

The country has never had legislation covering mortgage and property finance. The law is expected to regulate the use of mortgages, including registration and providing court authority over their use. It would require incorporation and regulation of finance leasing companies. Rising house prices in the kingdom 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.

The International Finance Corp estimates the Saudi market needs 200,000 extra residential units per year to narrow the shortage of homes for its growing population, and the housing market needs 1.3 trillion riyals worth of investment to finance the construction of those units for the coming 10 years, according to the Saudi Arabia-based Islamic Development Bank. [e-mail]