No instant impact from Saudi mortgage law - Fitch
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A night-time shot of Riyadh, the Saudi capital.
The introduction of a mortgage law in Saudi Arabia will improve the housing supply and social stability as well as provide diversification of the banking sector, Fitch Ratings has said.
However, the rating agency added in a new report that these benefits will not be instant because banks will approach the new market with caution.
Saudi Arabia will issue regulations and licenses for mortgages based on the Islamic lease financing model in August, Fitch said.
This has led to a drop in living standards among the lower-income population.
Total mortgage lending is a mere two percent of GDP and home ownership is only 30 percent of the population.
The jump in demand to buy houses now that mortgages will be available may trigger house-price inflation, Fitch said.
"The rise in house prices will be tempered by planned property developments that will help meet demand. Tight regulation on mortgages as well as a cautious approach by the banks will also help to dampen price rises," the Fitch report said.
The government is already undertaking an extensive house building programme.
Fitch said it expects private-sector property development to increase now that there will be financing available for young Saudis.
The government's Real Estate Development Fund offers subsidised mortgages to purchasers of affordable housing.
Most banks are also likely to be cautious in their approach to mortgages because it is unclear exactly how the foreclosure process will work, Fitch added.
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