Real estate funding programs under scrutiny in GCC

Saudi Arabia التمويل العقارى

The properties funding programs provided from different financial institutions and financing funds have covered larger proportion in the Khaliji real estate market varying from one country to another.

Despite the numerous facilities provided from the properties funding programs, they still stir a lot of doubts about its benefit. By the end of 2014, Al Eqtisady newspaper has published statements from Abdullah Al Ahmary, head of properties appraisal committee in Jeddah Chamber, saying that properties funding programs don’t really fit with the majority of citizens. Benefactors could find themselves paying 200% of the asset’s main value due to the accumulated interests.

Al Ahmary said also that the Saudi financial institutions are not fulfilling their social duties towards the Saudi community despite the fact that they get a lot of facilities from the Saudi government.

Citizens rush, especially in Saudi Arabia, to make benefit from the provided real estate funding programs — real estate funding rate grew by 5% in the last quarter of 2014 — led to a price hike on a large scale, the prices rose as a result of the funding programs in addition to lands and units scarcity. The market activity urged the Saudi government to take a bundle of measure for the sake of stabilizing the prices including the recent real estate funding law which entitles benefactors to pay 30% of the unit value as a down payment.

The Saudi measure started with establishing a special ministry for housing, passing the blank lands law, confiscating massive areas of unregistered lands, and the latter decree of issuing the new real estate funding law. These measures will definitely stand in favor of the Saudi citizen as planned.

However, the latter law rose a lot of questions about its feasibility, number of real estate experts mentioned that the problem core is lands scarcity not the funding plan, Saudi government, according to them, needs to provide more and bigger housing plans in different regions around the kingdom.

Others referred also to the law’s inapplicability; the 30% condition means that benefactor will have to pay around 300 thousand SAR in average, interests rates in Saudi Arabia are bit high, they range between 5% and 7% while rates don’t exceed 4% in U.S.A and other more developed countries.

The new real estate funding law could have reversible results on properties prices rate in K.S.A in addition to inflating rents prices throughout the kingdom.

Despite the current influx on real estate programs in Saudi Arabia, the number of benefactors is higher in other surrounding states; it reached 50% of buyers in Qatar, and 20% in other GCC countries, while benefactors’ rate hit 100% in some western countries.

Funding trend is taking place in Bahrain as well. Aref Hagras, the head of Real Estate Development Organization, said that the market recovery occurred in Bahrain last year is partially attributed to housing loans granted from national and Bahraini-based banks. The bank loans, facilitated by a number of governmental economic measures and procedures, contributed also in attracting many customers from different social levels.

Real estate funding programs’ feasibility varies from a country to another according to a number of factors including the national income average, availability of financial liquidity, in addition to the people’s own cultural perception.

The real estate funding program is still a controversial matter, despite its legitimacy from the perspective of Islam jurisdiction, it’s seen as a perfect solution for housing problem in GCC, while others believe that it’s not even close to be a solution as the problem is basically lands scarcity.