* Expected to fuel real estate boom in kingdom, banks to
* Housing one of key social issues in Saudi Arabia
(Adds detail, analyst quote, context, share prices)
DUBAI, July 2 Saudi Arabia has approved a draft
law allowing mortgages to be sold in the kingdom, the state news
agency said on Monday.
"It should help address one of the critical social issues in
the kingdom - housing," James Reeve, senior economist at Samba
Financial Group, said.
Housing has long been an issue in a fast-growing country of
27 million people, most of whom are under the age of 30, with a
lack of low- and medium-cost housing compounded by limited
finance options to help bridge the gap to home ownership.
The law is also expected to be a boon for banks, by creating
a new revenue stream. Annual demand has been put at 150,000 and
200,000 units per year, according to real estate service company
Jones Lang LaSalle.
"Banks are well capitalised, liquid and geared up to proved
the lending that is required," Reeve said.
The long-awaited law has been held up due to considerations
around providing mortgage finance in an Islamic sharia-compliant
manner, and how to deal with sensitive issues such as letting
banks take away a borrower's home if they default.
While not providing details , the statement reported by the
Saudi Press Agency said the draft includes measures "to ensure
the fairness of the transaction and the safety of the financial
Home loans do exist in Saudi Arabia, with payments deducted
from salaries when these enter bank accounts.
However, the new law allows for the first time the creation
of products secured against the property, meaning the borrower
can benefit from ownership of the asset, the statement said.
While the announcement came after the market close, shares
in Saudi real estate companies jumped on Monday. The real estate
index leapt 5.5 percent, versus the main measure's
0.6 percent advance.
Regulation of the mortgage sector will be undertaken by the
country's central bank, the Saudi Arabian Monetary Agency, the
(Reporting by Asma Alsharif and Amena Bakr; Writing by David
French; Editing by Sami Aboudi and David Hulmes)