Saudi banks boost home loans amidst property market risks

Saudi Arabia witnessed a significant surge in mortgage issuance after three years of decline. In the past year, banks issued 91 billion Saudi riyals, which is approximately $24.3 billion, marking a 17% increase from previous times. This rise in home loans is primarily attributed to lower interest rates coupled with state guarantees designed to promote homeownership among its citizens. With the objective to reach 70% homeownership by 2030, Saudi Arabia has already achieved approximately 65.4%, underscoring the effectiveness of these initiatives in driving up home loan issuance. However, this remarkable growth in mortgage lending conceals potential vulnerabilities within the real estate market. Prices and rents in major cities like Riyadh and Jeddah have been rising rapidly, raising alarms about the sustainability of this growth. Many potential homebuyers are now opting to take out loans for off-plan properties, which are homes still under construction. This raises questions regarding the financial stability of banks and the market’s resilience, as it may lead to further complications if property valuations continue to climb. The increasing prevalence of borrowing for off-plan properties could exacerbate the existing housing crisis, as it implies that buyers might be getting priced out of completed units. Analysts from S&P Global Ratings have indicated that although home loan issuance is on the rise, this trend may also lead to significant risks for banks if the market does not stabilize. The intervention by the state, while effective in promoting home ownership, could potentially face challenges in the face of inflationary pressures affecting the cost of living, thereby impacting buyers' purchasing power. Overall, while Saudi Arabia is on course to becoming the world's largest construction market, these underlying issues in the property market need to be addressed. In order to ensure long-term growth and stability, the government and financial institutions must evaluate their strategies and possible contingencies for fluctuating market conditions to avoid a crisis that could unfold in the future.