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RIYADH: After leading an ascent that began in 2018, real estate lending by Saudi banks has slowed over the past year due to a decline in the growth of the retail sector, according to the Saudi Central Bank, also known as SAMA.

In the second quarter of 2021, the growth rate of home loans decreased by half, from 10.8% in the first quarter of 2021 to 5.4%, from 10.8% in the first quarter of 2021.

Although banks’ home loans increased by SR28.2 billion ($7.5 billion) between January and March 2021 to reach SR502.7 billion between April and June 2021, their growth rate slowed by compared to the last six quarters.

Moreover, this decline in the growth trend continued throughout the second quarter, where the total value of home loans stood at SR638.7 billion.

The drop came after a reduction in retail bank mortgages that suffered the same fate since the quarter ending June 2021.

As a result, the growth rate of bank loans fell from 13.6% to 5.7% during this quarter.

However, that was not the case during the coronavirus pandemic.

Home loans from Saudi banks jumped 133% from SR215.6 billion in the second quarter of 2018 to SR502 billion in the second quarter of 2021, according to data compiled by Arab News. The period was seen as the peak of coronavirus restrictions.

The retail sector is driving this staggering increase, with individual loans increasing by 180% from SR128.3 billion to SR358.0 billion during this period.

As a result, the share of retail loans in the total mortgage portfolio of Saudi banks increased to 79% by the end of the second quarter of 2022.

On the other hand, loans to companies continued to decrease their share in bank real estate loans.

Until 2019, corporate loans accounted for around 40% of total lending by credit banks. However, this number continued to decline until it barely reached 25% last year.

So what could have been a possible cause for this change in trend? During the coronavirus outbreak, the Saudi government has taken it upon itself to help citizens in their search for an affordable mortgage plan.

The government has achieved this by removing the 15% value added tax from real estate transactions and instead levying a lower real estate transaction tax of 5%.

In fact, first-time homebuyers in Saudi Arabia have been exempted for transactions of up to SR1 million, according to a 2021 Bloominvest report titled “Saudi Arabia’s Residential Market and Its Impact on the Banking Sector.” “.

Banks then increased their mortgage lending to match government plans to boost home ownership. This trend manifested itself through new residential mortgage financing for individuals provided by banks’ impeccable growth, reaching its all-time high of 245% YoY in the third quarter of 2019 at SR19.5bn vs. 5, 7 billion SR in the third quarter of 2018.

According to SAMA data, this led to a 91% increase in the total value of new mortgage loans granted by banks to individuals.

However, like home loans, new retail mortgages have fallen over the past year. The number of new mortgage financing contracts decreased by 35%, from 65,667 in the first quarter of 2021 to 42,693 in the second quarter of 2021. The value of new mortgage loans decreased by 33%, from SR 49.0 billion. to SR 32.8 billion over the same period. It fell further to SR 31.2 billion in the second quarter of 2022.

Contract and value mortgages performed slightly better year-over-year in the second quarter of 2022, which could have signaled an eventual recovery; however, this was countered by another drastic decline in quarterly mortgage loan and contract values.

So it looks like the future of retail mortgages will continue in a downward spiral.


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