The Saudi cabinet gave its nod to the country’s mortgage law on Monday for the infrastructure industry on which it is spending around $500 billion to build and develop.
The mortgage law stipulates the regulations to establish mortgage companies and their activities. The law also aims to establish necessary guarantees for trade or investment in the real estate sector and establish strict rules for protecting the creditor, debtor and the guarantor in the process.
Drafted by Dr. Ibrahim Al-Assaf, the Finance Minister, the new law includes a detailed statement about the nature of the mortgaged assets and the procedures followed in mortgage contracts. It also stresses the importance of flexibility related to real estate and movable assets. Saudi Arabian Monetary Agency will regulate the mortgage sector.
The Kingdom intends to regulate other parts of the industry– from registering mortgages to allowing judges in prosecuting police officers who fail to carry out eviction orders. The law will now encourage banks to lend as it mitigates lengthy court disputes in case of default.
Housing has long been an issue in a fast-growing country. Home loans system is prevalent in Saudi Arabia where payments are deducted from salaries of the borrower. The new law now allows creation of products secured against the property.
The law is also expected to benefit banks by creating a new revenue stream. Annual demand for houses is pegged at 150,000 and 200,000 units per year, according to real estate service company Jones Lang LaSalle.
The law comes in the wake of a major expansion of the Prophet’s Mosque in Madinah. The project is carried out in three phases and when completed it would accommodate 1.6 million more worshippers.