Saudi Arabia Approves Mortgage Law
On July 2, 2012, the Saudi Council of Ministers approved the long-awaited mortgage law, which is comprised of five key areas; mortgage registration, real estate funding (securitization), finance companies, financial leasing and enforcement. The law is expected to stimulate the real estate sector by allowing for direct lending against property compliant with the Shura Council’s definition of loan providers as co-owners of the property, defining foreclosure procedures in the event of mortgage defaults, as well as making mortgage issuing more flexible. The new law also provides an indirect means to capitalize vehicles that make mortgage loans. The Saudi Monetary Agency (SAMA) will control the number of companies allowed to offer home finance, with Sharia-compliancy extending to the rights of the mortgage holder and not just the mortgage finance agreement. The law is expected to facilitate the development of supportive laws, rules and regulations related to appraisal procedures, deeds verification processes, and the development of Sharia-compliant mortgage products. Currently, only 2 to 3 percent of home purchases are financed by mortgages in Saudi Arabia.
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