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Saudis home in on new market

A long-awaited mortgage law is about to come into force in Saudi Arabia, but it will be several years before its full impact becomes clear.

There have been plenty of false dawns before, but Saudi Arabia is at last about to get a mortgage law, after almost 10 years of discussion. In early July, the Council of Ministers announced that the draft law had been approved, starting a process that should bring it into force by October.

For the country’s banks it opens up a large new area of business. There is certainly substantial pent-up demand for housing finance in Saudi Arabia, but the willingness of banks to lend to consumers has yet to be properly tested, as has the interest of developers in turning away from luxury developments and towards more affordable housing.

The cautious nature of banks and regulators in Saudi Arabia, and the conservative nature of the country as a whole, means that a slow evolution of the market seems more likely than rapid transformation. Even so, some industry figures think the new law could have a big impact.

"This is a major and potentially transformative piece of legislation," says Jarmo Kotilaine, chief economist at National Commercial Bank. "It creates the potential to offer mortgages to a far broader range of clients. It will create the incentive for developers to provide housing for the middle-income segment, and that will begin to transform the housing market in Saudi Arabia."

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