Saudi Arabia has been the only market in the GCC (Gulf Co-ordination Council - Bahrain, UAE, Qatar, Kuwait, Oman and Saudi) which has not so far reaped the benefits of explosion of the Real Estate Industry- especially from the perspective of the suppliers of finance. The reasons behind this peculiar situation; despite the Kingdom being the largest economy in the GCC in terms of GDP, are manyfold. But the key reasons are:
1. Lack of a Mortgage Finance Law in the Kingdom implies there is a lack of legal framework to help the Mortgage Finance Companies to enforce their liens on the properties they finance. This essentially means that in the Kingdom, with the existing public and till date the administrative attitude against repossession of properties (if the Mortgagee does not pay his debts regularly) severly restricts the Financiers ability to take steps against non payment or defaults.
2. Non Participation of Expatriates in the Property Market; which has been a stricking feature of the growth of this sector in the other GCC economies, especially that of UAE and Bahrain. The lack of excitement from expatriates for the Kingdom's property market stems from the restrictive nature of the society and ambiguous ownership laws.
3. The lower rentals in comparison to the other GCC Markets, especially Qatar and UAE do not provide renters enough incentives to own property and hence seek finance.
4. The tendancy of the Saudi's to live in Joint families and with their parents mean lesser people owning their homes and lesser demand for property financing.
However, the winds of change are blowing in the Saudi Real estate and consequently in the Mortgage Fianance Market. I will deal with these in the next post and in the subsequent ones I will talk about the strategies that a typical Mid sized Mortgage Finance player in the Kingdom should adopt to respond to these changing circumstances.
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