Saudi Banking Sector Surges with Record Real Estate Loans
Saudi banks have seen a remarkable increase in real estate loans, reaching a record SR846.48 billion ($225.73 billion) in the third quarter of 2024. This marks a 13.29 percent annual growth, as reported by official data from the Saudi Central Bank, also known as SAMA.
The growth in real estate loans is attributed to both retail and corporate lending, with corporate loans experiencing a significant 22 percent increase to reach SR189.6 billion. Lending to individuals accounted for 78 percent of the total at SR656.88 billion, reflecting an annual growth rate of 11.02 percent.
Real estate loans now make up 29.67 percent of Saudi banks’ total loan portfolio, which stood at SR2.85 trillion by the end of the third quarter. This expansion is supported by government-backed initiatives under Vision 2030, aiming to diversify the economy and meet the Kingdom’s housing demand.
Impact of Regulatory Changes on Real Estate Market
In 2018, the Saudi Central Bank increased the maximum loan-to-value ratio for first-time homebuyers from 85 percent to 90 percent. This strategic move aimed to stimulate mortgage lending, making homeownership more accessible to Saudi citizens while aligning with broader economic reform plans.
By enabling more citizens to secure financing for their first homes, this initiative directly supports the national housing strategy, which aims to boost homeownership rates and expand housing options across the country. SAMA emphasized maintaining financial stability while implementing these changes.
Monetary Easing Spurs Demand for Real Estate Loans
Recent monetary easing in Saudi Arabia, including interest rate cuts by SAMA, has made borrowing cheaper, leading to increased demand for real estate loans. However, this surge in demand has also contributed to upward pressure on housing prices, resulting in a 1.9 percent annual inflation rate in October.
Despite the rise in inflation, Saudi Arabia’s inflation rate remains among the lowest in the Middle East, showcasing the effectiveness of its economic stabilization strategies and resilience against global inflationary pressures.
Residential Mortgages Reach Record Levels
In October, Saudi banks issued SR8.14 billion in new residential mortgages, marking the highest monthly figure in 21 months with a 20.33 percent increase from the previous year. The capital, Riyadh, has seen a significant surge in residential mortgages due to population and employment growth.
Of the total residential loans in October, the majority was directed towards purchasing houses, apartments, and land. Apartment financing experienced the most substantial annual growth, reflecting changing demographics and lifestyle preferences in the housing market.
Establishing a Secondary Mortgage Market
Saudi Arabia is embarking on a transformative journey to establish a secondary mortgage market, aiming to redefine the Kingdom’s housing and financial sectors. Partnerships with global entities like BlackRock and local institutions are set to enhance liquidity in housing finance, boost homeownership, and align with Vision 2030 objectives.
These agreements will pave the way for mortgage-backed securities, improving market liquidity and reducing borrowing costs for Saudi families. The secondary mortgage market initiative is crucial for sustainable growth in the real estate sector and aligning Saudi Arabia with global capital markets.