Saudi Arabia is set to spend SAR120bn ($32bn) on subsidised home loans as it seeks greater private sector participation in the mortgage market.
Bloomberg reports that a new Eksan housing programme announced on Monday includes an SAR18bn loan guarantee programme to increase access to funding and SAR12.5bn for home down payments to be spent by 2030.
The programme, confirmed in an interview with housing minister Majed Alhogail comes under plans to expand to mortgage market by more than 70 per cent to reach SAR502bn ($133.8bn) by 2020.
The majority of this growth is expected to come from the private sector in a market where the government currently provides 65 per cent of loans.
“We want to change that completely,” Alhogail was quoted as saying. “It’s a very generous programme. It’s enabling the private sector, reducing their risk to a certain level.”
The programme comes as part of a Vision 2030 objective to increase home ownership among Saudi citizens from 50 to 60 per cent by 2020 and 70 per cent by 2030.
It includes SAR39bn ($10.39bn) of interest-free loans and other bonuses to developers to spur home building but the ministry will be watching closely for market bubbles, according to the official.
“As you know, when you launch a very strong programme like this, you expect the price could increase,” he was quoted as saying.. “You could expect more defaults, because you are lending to people who don’t have steady income.”
The housing ministry intends to hand over 125,000 housing units in partnership with the private sector in 2018, compared to 110,000 last year, and is aiming for 480,000 handovers by 2020 and 1.2 million by 2030. Prices will range between SAR250,000 ($66,660) and SAR750,000 ($200,000).
The government also seeking to encourage building with the introduction of a tax on undeveloped urban land last year. This is expected to generate up to SAR2bn ($533m) of revenue in 2018 and has seen about 30 per cent of owners develop their land to avoid payment.
Alhogail also gave an update on a mortgage refinancing company launched in October last year by the Public Investment Fund.
The company has bought SAR2bn ($5.33bn) of assets far of the SAR75bn ($19.9n) of refinancing it is intended to provide initially and SAR170bn ($45.3bn) by 2026.