Saudi residential mortgage loans jump to 11-month high in January

 Banks in Saudi Arabia granted residential mortgage loans totaling SR7.54 billion ($2 billion) to individuals in January 2024, marking an 11-month high as per data released by the Kingdom’s central bank.

The January figures signify a 21 percent surge, or SR1.3 billion more than the loans extended in the previous month.

This uptick can be attributed to various government initiatives aimed at enhancing access to finance, introducing new and affordable housing options to the market, and implementing operational efficiencies within the housing sector.

The Saudi government has taken multiple measures to bolster the infrastructure of the sector and improve the governance of the housing program.

Residential loans are predominantly utilized for acquiring houses, apartments, and land. House purchases accounted for the bulk, constituting 68 percent or SR5.13 billion, marking a 19 percent increase from the previous month.

Apartments accounted for 26 percent of the loans, totaling SR1.97 billion, with a growth rate of 17 percent during the same period.

While representing the smallest share at 6 percent, new loans for land purchases recorded the highest growth rate at 73 percent, reaching SR440 million in January.

Some of the key initiatives driving the transformation of the Saudi housing sector include the establishment of the Saudi Real Estate Refinance Co. by the Public Investment Fund in 2017. This initiative aims to enhance liquidity in the real estate market and provide homebuyers with sustainable financing solutions.

Another initiative, Sakani, supports citizens in owning their first homes by offering online applications for instant approval, creating new housing, allocating building plots, providing financial support like subsidized mortgages, and matching applicants with suitable housing solutions based on their financial status.

Additionally, the waiver of value-added tax introduced in 2020 replaced a 15 percent real estate sales tax with a 5 percent disposal tax, alongside exempting first-time buyers of properties worth up to SR1 million.

Furthermore, the introduction of the White Land Tax, imposing a 2.5 percent levy on undeveloped residential land, aimed to increase land supply for construction purposes.

The Saudi Central Bank played a pivotal role by reducing the minimum down payment required for property purchases from 30 percent to 5 percent, thereby stimulating growth in the housing sector.

Despite these initiatives, affordability concerns due to rising interest rates and borrowing costs have resulted in a 10 percent decrease in new residential bank loans compared to the same period last year.

Real estate prices for villas and apartments continued their upward trajectory in 2023, leading to a decline in transaction volumes. Riyadh, Jeddah, and Dammam collectively recorded a 15 percent decrease in residential transactions in 2023 compared to 2022, as per Deloitte's 2024 KSA market review.

Sales prices and rents in Riyadh and Jeddah have witnessed increases, particularly in specific segments targeting low to mid-income groups.

The introduction of premium residency visas and other initiatives aims to attract international investments and diversify the economy, aligning with the goals of Vision 2030. However, challenges remain, including the perception of a lack of local financing options for high-net-worth individuals, which could potentially create opportunities for the broader Saudi real estate market and banking sector

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