1. THE MORTGAGE MARKET IN SAUDI ARABIA 1
The Mortgage Market in Saudi Arabia
FINC 4302 - Financial Markets & Institutions
Spring 2014-2015
Bashaier Abdulsalam
( it was a team work )
May 6, 2015

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Table of Contents
Section 1......................................................................................................................................................3
Introduction ............................................................................................................................................3
Aims and Objectives ...............................................................................................................................3
Section 2......................................................................................................................................................5
Saudi Arabian Mortgage Market .............................................................................................................5
Section 3......................................................................................................................................................9
Recommendations and Conclusion .........................................................................................................9
Part B 10
Saudi Arabia to Open Stock Market to Foreign Investors: https://www.youtube.com/watch?
v=xTL3ydtpjA4.......................................................................................................................................10
References.................................................................................................................................................12

3. THE MORTGAGE MARKET IN SAUDI ARABIA 3
The Mortgage Market in Saudi Arabia
Section 1
Introduction
A mortgage market is defined as the interaction between lenders and home loans
borrowers. The rationale of the mortgage market is to provide home owners with an opportunity
of owning a home without going through hassles associated with owning a home (Shoult, 2006).
Just like a normal loan, mortgage products are tailored to the needs of those who would wish to
own a home by paying smaller amounts which are inclusive of interests charged (Fund, 2012).
This implies that as customers take mortgage loans, they should be prepared to pay out a given
amount within the scheduled time agreed with the bank. For example, if the customer is required
to pay the mortgage on a monthly basis, this protocol should be followed without contravening
the rules. The payments required by lenders are expected to service the mortgage product that
has been acquired.
Aims and Objectives
The main objective of this paper will be to analyze the mortgage market and understand
how it works in the context of a financial system. In this regard, this research paper will focus on
the Saudi Arabian mortgage market by highlighting various issues related to the financial sector.
In addition, the role of the mortgage market in the development of the Saudi Arabian economy
will be reviewed with the objective of understanding the benefits that come along and also the
challenges. It would be important to look at both sides of the coin in relation to the mortgage
market in Saudi Arabia (Abdeen & Shook, 1984). Challenges resulting from the development of
the mortgage market will be analyzed in order to get the right perspectives of the mortgage
market in the Arab nation.

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Regulatory issues will also feature in this research paper and will help understand the
manner in which Saudi Arabia has formulated polices aimed at streaming the mortgage market.
For example, the activities of Saudi Arabian Monetary Authority will be outlined with regards to
improving the mortgage sector in the country. Banking is another discussion point that will
feature in this discussion and will be used to help understand how the institutions influence this
sector. In addition, a comparative analysis of existing mortgage laws and the banking policies
adopted will be undertaken with the objective of understanding how the latter has affected the
former. The final part of the research paper will provide a number of recommendations needed
for addressing various issues in the Saudi Arabian mortgage market.
Before advancing a mortgage, lenders asses the financial muscle of the borrower by
reviewing factors such as income and the assets owned by the client. These considerations are
instrumental for supporting the bank in the event of a default. Security is a requirement of many
lenders and is used for providing a backup plan that would cater for the default of loan
repayments (Peagum, 1985). The question of foreclosure has been associated with mortgage
loans and results when the borrower fails to live within the repayment agreement made during
the signing of the loan product. The fact that the customer took a mortgage makes them obligated
to provide securities for the purpose of recovery. Taking into account the risks associated with
foreclosures, lending institutions create requirements which have to be met by those taking the
housing loans.
The mortgage market is considered as an important segment of financial markets that
bolsters economic growth. Market analysts contend that the mortgage market enhances the
financial markets by increasing credit facilities. The increase in loans and borrowing activity is
good for the economy and helps build on the infrastructural needs of a given region. The real

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estate sector was triggered by the loan packages introduced by banks to attract more home
owners to live the dream of owning a house. The flexible and customized components of home
loan products go a long way in sparking demand in the market (Shoult, 2006). According to
surveys on home ownership, many consumers would love to own a home now or in the near
future. These results are a reflection of the potential held by the mortgage market. As the main
regulator of market activities and financial markets, the government endeavors to provide
guidelines that would protect the interests of various stakeholders in the industry (Lessambo,
2013). The lessons on mortgage loans in the concluded recession are a stark reminder of the risks
posed to the mortgage market. It should be known that the mortgage market helps in
consolidating the dimensions of the financial markets by enhancing the movement of credit. As
more customers acquire credit for home ownership, the economy improves by attracting
investors from outside to come and invest in the domestic market. Hard choices have to be made
when it comes to assessing the movement of the mortgage market to avoid the emergence of
risks which triggered the financial recession of 2009. The trend of taking banks taking risks with
home ownership loans should be avoided meaning that mortgage players should play by the rules
in the market.
Section 2
Saudi Arabian Mortgage Market
The first mortgage law that Saudi Arabia needs to oblige by in order, to enhance the real
estate market is developing a licensing system that resonates with the regulations established by
the Central Bank. There have been differing opinions from mortgage analysts on the importance
of formalizing the licensing process. The importance of this process is reflected in the long term
where a sense of order and professionalism is exhibited in the market system (Lessambo, 2013).

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For example, the conditions that led to loss in the value of homes in the recession can be
attributed to the lax attitude of mortgage companies in terms of consolidating the licensing
process. Therefore, enhancing the real estate market in Saudi Arabia requires concerted efforts in
terms of introducing licensing mechanisms that help create order in the market. The failure by
lending institutions to improve their lending controls led to irresponsibility and risk taking that
compromised the position of lenders and borrowers in the market.
Financial accessibility and effective provision of services is another law that Saudi
Arabia ought to adopt with regards to improving the situation of the mortgage sector in the
country. Accessing financial services is the first step that would help borrowers make efforts
towards owing their homes. Financial services matter in the course of developing the mortgage
market meaning that Saudi Arabia is obliged in terms of streamlining the financial sector by
fostering service delivery at all levels. A combination of service provision and convenience-
when accessing loan products from lenders- are the best options that Saudi Arabia needs to
oblige in order to develop a vibrant mortgage market sector (Shoult, 2006).
The first regulation by Saudi Arabian Monetary Authority published with regards to
mortgage financing laws is the Real Estate Finance Policy that gave power to SAMA in relation
to regulating the real estate industry. For example, the law allows SAMA to play an oversight
role in all activities related to the real estate sector. A good example of these roles is the
requirement for mortgage companies to provide information on the contract arrangements made
with borrowers and a detailed credit report. As the regulatory authority charged with playing an
oversight role in the real estate industry, SAMA ensures that all companies and stakeholders play
by the rules. Integrity issues are another factor considered in the development of this law. The

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agency was tasked with the role of ensuring that integrity was observed at all levels while at the
same time protecting the interests of all stakeholders such as borrowers and banks.
Finance Lease Law is the second regulation published by SAMA to cater for the lease
agreements involving assets. Movable and immovable assets are also part of this category with
both the needs of those leasing and lessors taken into consideration (Lessambo, 2013). Given the
numerous conflicts resulting from the interaction between banks and consumers of home
products, the crafting of this legislation offered a new hope and direction in the way these two
parties would build a positive relationship devoid of issues such as mistrust and paying high fees
on acquisition of mortgage loan products. The registrar is also included in this provision and acts
as the appointed authority that issue operating licenses to players in the real estate industry.
Supervision of Companies law is the other regulation whose publishing focused on
financing laws in the mortgage market. In collaboration with SAMA, the implementation of the
regulation would entail regulating the activities of companies in the finance sector. The main
distinction between this law and the previous regulations is overseeing the inclusion of
companies dealing with finance apart from those in the mortgage industry. Governance issues
have been outlined in this law with attention being placed on the need for companies to develop
the right approaches for doing business in the industry.
The first benefit of mortgage financing to the citizens of Saudi and the overall economy
is access to credit facilities. Financing is key towards promoting a borrowing culture in the
country. There are concerns that most people in Saudi Arabia shy off from acquiring home loans
as a result of high charges (Abdeen & Shook, 1984). This shows the importance of easing the
access to financial support towards potential and existing home owners. Access to credit comes
first in relation to developing capital mobility in the economy. The mortgage industry has been

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criticized in the past as lacking the right framework needed for meeting the needs of consumers.
The sensitive issue here is ability of consumers to acquire mortgage loans without having to
incur burdens as high interest rates and rigid requirements. An economy that provides credit
access to consumers grows faster and stronger as compared to a situation where access to credit
is low. In Saudi Arabia, the regulatory authorities have put in place laws meant to increase the
convenience of accessing credit facilities while at the same time relaxing the tough conditions
that ordinary folks are required to comply with. On the other hand, the benefits of developing an
effective lending system benefit the economy through, stabilization of the financial system and
improving growth. Indicators used to map growth in Saudi Arabia are inclusive of the mortgage
market that is thought to have a reasonable value.
Higher living standards and attraction of foreign investors is the other benefit of
mortgage financing to the people and economy of Saudi Arabia. When citizens are able to
acquire credit and build their own homes, chances are that they can reduce the cost of meeting
daily needs by getting a payment reprieve from mortgage companies. Under normal
circumstances, home owners who take loans are expected to pay the total amount in phases
which gives them an advantage as compared to buying the property in cash (Lessambo, 2013).
The loan packages in the mortgage market in Saudi Arabia have been fashioned with the needs
of consumers in mind. For example, the flexibility introduced by lenders in relation to repaying
the loan is considerable and provides ordinary folks with the stamina to own a home and manage
other needs. There is a direct relationship between economic growth and increase in the lending
nature of mortgage companies. The situation has been evidenced in Saudi Arabia where the
revenues coming from this sector have significantly improved the economy. It can be said that
investments that come from abroad into the Saudi Arabian economy have increased as a result of

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a stable housing market that provides returns. The number of local and foreign investors in the
Saudi economy has increased thanks to the regulations introduced to maintain standards and
fulfil the needs of all stakeholders.
External price factor is one of the challenges facing the implementation of mortgage
financing in Saudi Arabia. International prices of mortgage have always determined the policy
adopted by the Saudi market. For example, there are times when reducing mortgage rates
becomes unfavorable despite of a decline in the international housing market prices. Adoption of
a new financial system is the other challenge facing the mortgage market in Saudi Arabia
(Peagum, 1985). For example, given that Saudi Arabia had no stable financial system in the past,
the introduction of this concept I the market has posed numerous challenges to all stakeholders.
Regulators for example, grapple with the emerging risks and the position of consumers in the
midst of a changing market system.
The banking industry in Saudi Arabia will be affected by formulation of new mortgage
laws such as Real Estate which have been mandated with making decisions related to the
operations of the industry. For example, undisclosed activities of financial institutions such as
risky bets will be prohibited and also protect the interests of consumers.
Section 3
Recommendations and Conclusion
Effective policy formulation is a requirement with regards to making meaningful changes
to the system of borrowing and financing in the mortgage market. As long as the right policies
are put into place, the mortgage industry of Saudi Arabia is set to grow in a robust fashion that
would build the much needed confidence (Abdeen & Shook, 1984).

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Addressing market volatility is another recommendation that would work for the case of
Saudi Arabia in term of building its mortgage industry. Consumers would not only be protected
but would also get value from their loan contributions. The experience from the recession was
that the mortgage market is highly volatile and needs the right controls that would leverage the
needs of consumers in the long haul.
Mortgage financing in the Saudi Arabian market has gained momentum with the recent
diversification of the financial system used in the country. Regardless of challenges that face the
real estate market in Saudi Arabia, the benefits of this financing approach are evident in the
economic growth attained in the country. In addition, the introduction of healthy regulatory
policies has had a major impact on the economy with outfits such as SAMA playing an oversight
role of all mortgage related activities in the economy. Thanks to a thriving mortgage sector in
Saudi Arabia, the future looks bright for citizens and the economy in general.
Part B
Saudi Arabia to Open Stock Market to Foreign Investors: https://www.youtube.com/watch?
v=xTL3ydtpjA4
The above video talks about the decision by Saudi Arabia to allow foreign investors to
buy stocks in the country and the diversification strategy currently used in detaching the
economy from dependence on oil revenues (Fox business, 2015). By allowing investors to buy
stocks, the country is focused on forming an inclusive and diverse economy that is aligned with
global perspectives.
The approach discussed in the above video about Saudi Arabia opening up its market
system to outside investors is happening in the country as evidenced by the current
diversification of other economic sectors. For example, the financial system and the stock market

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have been improved to match international standards. By attracting foreign investors, the country
would not only make strides forward but also become an important player in the region. The
expansion of the mortgage market in Saudi Arabia is another aspect showing the current
economic diversification taking place in the Arab nation and supports the assertions made in the
above video.
The video adds to this research on the mortgage diversification approach used by Saudi
Arabia in diversifying the economy by investing in other sectors such as the financial markets.
The mortgage market developed in Saudi Arabia shows a transition by the country to a
knowledge economy that is in line with the emerging global trends. Given that oil is the main
natural resource in the country, looking into other sectors of the economy such as mortgage
financing has signaled the dawn of new economic reforms in Saudi Arabia. In summary, the
expertise analysis provided by the panelists in the video is an illustration of the gains made by
the Saudi Arabian economy and the future outlook.

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References
Abdeen, A., & Shook, D. N. (1984). The Saudi financial system, in the context of Western and
Islamic finance. Chichester [West Sussex: Wiley.
Fund, I. M. (2012). Saudi Arabia. International Monetary Fund.
Fox Business. (2015). Saudi Arabia to Open Stock Market to Foreign Investors. Accessed on 28th
April, 2015. https://www.youtube.com/watch?v=xTL3ydtpjA4
Lessambo, F. I. (2013). The international banking system: Capital adequacy, core businesses
and risk management. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.
Peagam, N. (1985). The industrialization of Saudi Arabia. London: Euro money Publications.
Shoult, A. (2006). Doing business with Saudi Arabia. London: Global Market Briefings.