Saudi banks’ mortgage potential estimated at SAR 500 mln, says Al Rajhi Cap

Al Rajhi Capital in a recent report estimated the potential mortgage loans that can be provided by banks and financiers in the Kingdom at over SAR 500 million, which makes up one third of Saudi banks’ total loan book to the private sector (which stands at SAR 1.5 trillion).

Nearly 1.22 million homes are expected to be financed by mortgage loans, which are subsidized by government programs from 2020 to 2030 in the Kingdom, to increase the percentage of home ownership from 50% to 70% in line with Vision 2030.

Saudi Arabia is forecast to see 190,000 units annually over the next 3 years, compared to 180,000 units in 2019.

With the Saudi government subsidizing home ownership, the effective interest is almost 0% for a 20-year mortgage worth SAR 500,000 and around 3.5% for a mortgage worth SAR 1 million, the investment bank said.

Given the higher benefit in purchasing house at the lower end and lower income category of buyers, the average mortgage value has declined to SAR 430,000 in Q3 2019 from SAR 650,000 in Q3 2018.

The mortgage potential in the Kingdom is still intact. Al Rajhi Bank, Riyad Bank, and Bank Aljazira are likely to benefit the most.

“Assuming SAR 80 billion increment in mortgage market next year and everything else remaining constant, we estimate that mortgage could add c.5% of the TTM profits (trailing twelve months) to the sector’s bottom line in 2020,” Al Rajhi Capital concluded.