The new mortgage law seems certain to transform the Kingdom’s property market, in many ways for the good, though it also brings with it certain risks.
The clearest benefit is likely to be to borrowers, especially to young people trying to get on to the housing ladder. A shortage of affordable housing, generally high property prices and a scarcity of credit products from the financial system, have all combined to impose real challenges, especially on young men who wish to get married and raise a family. If newlyweds have not had family members who have been able and indeed prepared to advance them the money for a reasonable matrimonial home, they have been stuck in rented accommodation. The monthly rent, itself often high, has been money flying out of door, which could have gone toward buying their own property.
It is also good news for the banks which have been pressing for many years for legislation that makes clear the obligations of both parties in a mortgage contract, not least the process of foreclosure and re-possession should borrowers fail to keep up repayments.
It has been estimated by one local realtor that the demand for mortgage products could be up to 200,000 a year. What is not yet certain is how much of this will come from young people wanting to buy low and medium-cost housing. It is equally unclear how much of their mortgage effort the banks and other lenders are going to be aiming at this potentially very large, but less profitable segment of the market. Most financial institutions would much rather lend large sums for high-end property purchases to fewer individuals.
The readiness of banks and mortgage companies to lend for low and medium-cost housing is of course only half of the picture. That stock of housing has to exist to meet increased market demand. While the new industrial cities include extensive provisions for this sector, the immediate demand is going to fall on established urban centers, where there remains a shortage. Developers understandably prefer to build for the higher end of the market, which because it is not so price sensitive, is generally more profitable.
And this bring us to the risks that come with the new mortgage law. If the stock of suitable housing is low but the availability of credit to buy it has been unlocked, then the inevitable result is that prices are going to rise. If the increases in value are sharp and rapid, as seems very likely, the speculators can be expected to pile in to the market, further diluting the effect of the legislation for first time buyers, at whom it was aimed.
Either the stock of the right sort of homes must be increased, with some sort of official inducements to developers, or a set proportion of mortgage finance should be ring-fenced exclusively for new home owners. Perhaps also the government could give thought to providing eligible young couples with the deposit for their first home, to be repaid when it is eventually sold.