Deloitte highlights requirements for a successful Saudi Arabia mortgage market
Source: Deloitte , Author: Posted by BI-ME staff
Posted: Sun July 28, 2013 10:05 am

SAUDI ARABIA.  A new whitepaper released by Deloitte in July examines the potential mortgage industry in Saudi Arabia and highlights key issues that need to be addressed in order to create both lender and consumer confidence in this market.

The whitepaper lists the five laws that will make up the Finance Law, which are the result of a program implemented by the Government of Saudi Arabia for the development of a functional primary mortgage market.

The Deloitte whitepaper lists and describes the new laws, followed by a discussion of lenders and consumers’ potential concerns with regards to the new mortgage infrastructure.

Laws governing the mortgage industry

5 laws are outlined in the whitepaper relating to the implementation of a sound mortgage environment. These are:

1. The Enforcement Law: allows for judges to hear enforcement disputes and insolvency actions (such as foreclosure).

2. The Real Estate Finance Law: provides the regulatory architecture for the authorization and licensing of banks and finance companies to enter the real estate market.

3. The Registered Real Estate Mortgage Law: requires the registration of real estate mortgages.

4. The Finance Lease Law: prescribes the rules surrounding finance leasing.

5. The Finance Companies Control Law: provides a regulatory and supervisory framework for Sharia’a compliant finance companies to provide real estate financing.

The implementation of three of the five laws was completed in February 2013. However, the final intricacies of the remaining laws, the Enforcement Law and the Registered Real Estate Mortgage Law, are yet to be resolved and the laws have yet to be enacted.

“Saudi Arabia is making significant steps towards the creation of a mortgage industry and is opening up to finance providers” observes Robin Williamson, managing director of financial advisory services at Deloitte Middle East. “Nevertheless, the transformation will not occur overnight, not least because two of the five laws are yet to be completed.”

Deloitte experts suggest that in order to arrive at a well-functioning mortgage system, laws and regulations governing this industry should provide stakeholders, in particular banks (lenders) and households (borrowers), with a reasonable degree of comfort and confidence in the system. The Deloitte whitepaper presents the key concerns that lenders and consumers are likely to face in relation to the mortgage market.

Lenders’ key concerns include the ability to demand and secure assets pledged against debt.  The ability to service the debt is another critical concern of lenders; this will be partially addressed by the establishment of a centralized credit agency and the implementation of a credit check on all mortgage applications.

A consumer concern relates to the variance between the cost of mortgages in comparison to renting. First time buyers are likely to be subjected to higher interest rates and thus higher repayments. As such, mortgages for most properties may be unfeasible for low and middle income families who may opt for renting as the most financially viable option.

Deloitte experts highlight the need of ensuring confidence in the mortgage system between various stakeholders. In addition to the concerns already listed, transparent practices, fair treatment for lenders and borrowers and equivalent protection of their rights are key factors in creating buyer and lender confidence.

“In principle, the multi-dimension reforms appear sufficient to develop a functioning mortgage market; however, fundamental to this is whether they are executed in their entirety, or whether there is any uncertainty as to their exact definition” concludes Williamson.

For the full report, please click here.

About Deloitte & Touche (M.E.):
Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is the first Arab professional services firm established in the Middle East region with uninterrupted presence for over 87 years. Deloitte is among the region’s leading professional services firms, providing audit, tax, consulting, and financial advisory services through 26 offices in 15 countries with over 2,500 partners, directors and staff.  Deloitte has been annually classified as a Tier 1 Tax advisor in the GCC region since 2010 by the International Tax Review World Tax Rankings.

About Deloitte:
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges.

Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of excellence. Deloitte's professionals are unified by a collaborative culture that fosters integrity, outstanding value to markets and clients, commitment to each other, and strength from cultural diversity. They enjoy an environment of continuous learning, challenging experiences, and enriching career opportunities. Deloitte's professionals are dedicated to strengthening corporate responsibility, building public trust, and making a positive impact in their communities.



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