The new general policies on mortgage financing—which are part of the new regulations for the housing sector and support for homeownership, and which were approved by the Council of Ministers—highlight an important aspect regarding the guarantees that government agencies responsible for housing provision are moving to adopt, through government guarantees for citizens seeking mortgage financing, or for developers wishing to develop large tracts of land for the construction of housing units, with a focus on building affordable units suitable for the target groups under government support programs.
Down Payment Guarantee
One of the program’s key features is a down payment guarantee for citizens seeking mortgage financing from a private financial institution, such that 20% of the total down payment—which amounts to 30% of the financing value for the residential unit—is guaranteed, with the citizen bearing 10% of the total down payment.
These guarantee programs in mortgage financing are part of the government’s efforts to support the real estate development sector, which has suffered from the reluctance of many financial institutions to finance housing construction, due to the risk of land price fluctuations and the inability of some banks to understand the needs of real estate developers—a challenge that some specialized real estate finance companies have successfully addressed, such as Amlak International Finance, which has financed more than 70 real estate development companies in various cities across the Kingdom.
Real Estate Financing Policies
As part of its decisions to support housing and home ownership for citizens, the Council of Ministers approved the «General Policies for Real Estate Financing.» The decision included the formation of a ministerial committee comprising the Ministries of Finance, Housing, Justice, and Commerce, Industry, Economy and Planning, the Saudi Arabian Monetary Authority (SAMA), and the Capital Market Authority. This was based on the Ministry of Housing’s capacity and its ability to respond to market changes, as well as consumers" need for financing products, and the need to avoid limiting these functions to a single entity—the Saudi Arabian Monetary Authority (SAMA)— so that the ministerial committee serves as an advisory council that develops implementation plans to achieve the strategic objectives set forth in the general policies for real estate financing, monitors the implementation of those plans, and links them to specific timeframes and performance indicators, The implementation of these policies will be accompanied by the establishment of a real estate credit registry and a clear definition of the target segments for real estate financing.
Mortgage Lenders
The most important tasks of the ministerial committee were to consider whether to reduce or maintain the down payment ratio for individual financing provided by financial institutions, depending on market conditions and demand. The Real Estate Fund also provided guarantees to borrowers from banks and real estate finance companies.
Therefore, we find that focusing attention on the development of the real estate sector, as if it were a primary sector, as seems to be the case at present, rather than supporting other productive sectors such as industry, services, and tourism, actually heightens concerns that real estate activity will become the main driver of the economy, leading growth, and consequently monopolizing financial and human resources at the expense of the core productive sectors—whose growth is supposed to drive growth in the real estate sector, not the other way around.
Real Estate Financing and Complementary Policies
The adoption of general policies for real estate financing—which can be classified within the broader framework of fiscal policies—actually calls on us to also pay attention to other complementary policies in the real estate sector beyond the fiscal sphere. These include economic policies aimed at reducing the costs of construction materials, and labor costs, and encouraging charitable and cooperative real estate projects, as well as urban policies such as the implementation of the Saudi Building Code in real estate projects, the redevelopment of old neighborhoods and informal settlements, and other such policies that are no less important or influential than fiscal policies.
