Saudi banks extend real estate loans to $200bn in Q3 of 2023

RIYADH: Real estate loans from Saudi banks reached SR747.2 billion ($199.24 billion) in the third quarter of 2023 – an annual increase of almost 13 percent.

The data, which comes from the Kingdom’s central bank, shows the expansion can be credited to government-supported initiatives promoting Saudi home ownership as well as the significant rise in construction activities within the Kingdom.
To enhance home ownership affordability for Saudis, approximately 72 percent of the Kingdom’s overall real estate financing agreements between the first quarter of 2017 and the corresponding period in 2023 received support from diverse subsidy programs,
as stated by Mansour bin Madi, CEO of the Real Estate Development Fund.
The official highlighted REDF’s pioneering role in shaping a financing market that increased opportunities for home
ownership beneficiaries.
Additionally, it facilitated collaboration with partners and financing agencies to create programs aligned with the fund’s objectives. This information was shared during the Housing Finance Conference in Riyadh in May 2023.
He also emphasized the significance of the Real Estate Financing Guarantees Program, designed to aid citizens who do not qualify for credit. Bin Madi mentioned that the program has assisted over 116,000 beneficiaries.
Real estate loans accounted for 29 percent of Saudi Arabia’s bank loans, with 21 percent directed to corporate entities and the remaining 79 percent designated for retail. Despite the greater allocation to individuals, corporate loans exhibited a higher growth rate during this period, increasing by 17 percent compared to 12 percent for retail.
Approximately 97 percent of real estate loans to individuals in Saudi Arabia are provided by the banking sector, with the remaining loans originating from specialized home financing companies.
A Deloitte report on Saudi Arabia’s mortgage market highlighted that the inability of home finance companies to cross-sell mortgages alongside other products, as done by commercial banks with extensive branch networks, constrained their ability to expand their customer base.
Finance companies provided real estate loans amounting to SR27 billion, indicating an almost 1 percent increase during this period. This economic activity accounted for 33 percent of their total lending portfolio.
Historically, there has been a disparity between available financing options and the affordability of housing provided by private developers, resulting in constraints on home ownership for Saudi households, as per a research document by Deloitte.
“While the government is working to increase affordable housing supply, the provision for providing mortgage-backed securities to investors has also received a boost in recent years through the creation of the Saudi Real Estate Refinance Company, a subsidiary of Saudi Public Investment fund, in 2017,” added Deloitte.
Minister of Human Resources and Social Development Ahmed Al-Rajhi also highlighted the contribution of the Saudi real estate sector to job creation and sectoral advancement during a panel discussion at the Real Estate Future Forum in Riyadh. He emphasized that the sector’s influence goes beyond direct employment, aligning with Saudi Arabia’s goal to transform the housing industry and boost investments in line with Vision 2030 objectives.
On the flip side, new residential mortgage lending provided by banks for individuals from July to September has experienced a 38 percent decline compared to the corresponding period of 2022, attributed to higher borrowing costs that can increase the expenses for borrowers engaging in mortgage loans.
According to a survey by Knight Frank in 2023, respondents were asked about the impact of rising interest rates on home purchase decisions. The results revealed a distinct age-based divide in sentiment. Individuals below the age of 35 expressed the most significant impact, with 26 percent indicating they would either downsize or purchase a smaller property, and an additional 21 percent considering a change in location based on affordability.
Conversely, individuals aged 35 and above are most affected by the need to reconsider financing options, with 27 percent indicating this as the primary impact.
Nevertheless, the impact of rising interest rates might have been counterbalanced by a substantial surge in construction activity in Saudi Arabia, major development initiatives supported by the Public Investment Fund, and various Vision 2030 initiatives aimed at enhancing access to finance. The study underscores the significance of credit availability and accessibility, playing a pivotal role in driving Saudi Arabia’s residential market.
The survey highlighted the importance of financial assistance, particularly with proposed loan-to-value ratios. A majority, accounting for 80 percent, express their willingness to contribute only 10 to 20 percent of the total price as an initial payment, opting to clear the remaining amount through regular installments. Additionally, 46 percent are interested in settling the remaining amount through a post-handover payment plan, while 34 percent are willing to fulfill all outstanding payments before the handover.