RIYADH: The Saudi Arabian Monetary Agency (SAMA) has a number of reservations about the proposed real estate mortgage law, sources told Okaz/Saudi Gazette. The concerns are based on local banks' views, investors' goals, the price of real estate and the inflation it is causing in the real estate market, which has contributed to the rate of the general inflation index reaching 6 percent, according to sources. Local banks' reluctance to enter the mortgage market is reflected in comments from business sources who described the passage the law as an imminent risk for the banks, which would buy residential flats for citizens according to contracts resembling what is known as the BOT system (buy, operate, transfer). Sources said the banks are afraid that there will be sharp drops in housing prices after they enter into binding contracts with citizens. That would leave the banks with huge losses if they have to get rid of buildings whose owners fail to pay the monthly installments or cannot do so because they lose their jobs, which constitute major guarantees for the banks. However, those in the real estate sector are making great efforts to ensure the approval of the law so they avoid the impact of an expected move to correct housing prices, which could cut profits, according to sources. The sources predicted that those efforts will be unsuccessful because of new developments that are expected to affect the markets. Latest studies show that there is an urgent demand for 3 million residential buildings throughout the Kingdom amid rapid population growth. The Real Estate Fund has not been able to meet the need on its own, sources said. The proposed law is part of a planned overhaul of the Kingdom's home finance market, regulating all parts of the industry: from registering mortgages to allowing judges to prosecute police officers who refuse to carry out eviction orders. The changes are aimed at easing the concerns of lenders discouraged by unclear regulation that could lead to lengthy court disputes. “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.
