The law change is part of a proposed updating of the entire home finance market which has been worked on for 10 years.
The overhaul aims to modernise regulation of the market within the Kingdom, from registering mortgage loans to facilitating eviction of non-payers.
“You can’t function as a mortgage finance business without having a law that regulates all activities,” said Henry Azzam, chairman of Deutsche Bank AG in the Middle East and North Africa.
The new law will encourage banks to lend by making it easier to take action when a borrower doesn’t pay, he said.
Currently less than 1% of all property purchases in Saudi are financed by mortgages, as lending in the country is hamstrung by its strict interpretation of Islamic Law.
However, conditions are ripe for a change to the legislation. Saudi Arabia needs millions of new homes to accommodate a population which has quadrupled in the last 40 years to 29m – 60% of whom are under 25.
Saleh Al-Shoaibi, head of the Shura Council’s Economic Affairs and Energy Committee, says the country will need 18 million to 20 million homes over 10 years.
“The demand is huge and can’t be easily met,” Al-Shoaibi said. “It will require a system that facilitates home ownership.”
The new mortgage law has been drafted by local firms along with Allen & Overy. King Abdullah is expected to make the final decision on its implementation before the end of November.
