A new law allowing foreign companies to provide residential mortgage finance is set to revolutionise the residential real estate market in Saudi Arabia.
There is a huge shortage of homes throughout the country due to rapid population expansion, however up until now it has been difficult to secure funding for new construction projects.
The new legislation is expected to transform home financing leading to an explosion in the size of the lending market. The move is a result of increased demand, which has seen 200,000 new homes a year needed. It is predicted that the population of large cities such as Jeddah, Riyadh and Dammam could grow between 52 percent to 58 percent by 2025, causing even more demand as children leave home.
“The main issues facing the need for affordable housing in Saudi Arabia are population growth and income levels. But we also have internal issues such as escalating land prices, the preference of Saudis for large, expensive houses and the unwillingness of banks to offer project financing,” Riyadh Al-Thuqafi, CEO of Ewaan Global Residential Company said.
In addition to the new law developers are pushing the government to create a bank dedicated to funding new projects that would help address the shortage. They are also calling for the government to appoint an agency to regulate land prices and for transparency in the system to prevent price manipulation.
There are more than 3,000 construction projects worth $74 billion in the pipeline in the Saudi capital in addition to a planned metro and three main railway lines. It is hoped this new legislation will add thousands more.
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