Problems surrounding housing loans


Makkah Newspaper

THE ongoing depression in the real estate sector is good because it directly contributes to lowering land prices and construction costs thus enabling citizens to build their dream homes.

At the same time, the low demand and accumulation of real estate products will become difficult problems in the future, not to mention other consequences.

The Housing Ministry and the Real Estate Development Fund have been making continuous efforts to ensure enough supply of housing products. Since the beginning of this year, the ministry has been announcing about 15,000 products every month, but no clarifications have been made regarding the response to these offers. It seems the demand for these offers was weak, especially because of the tough conditions set by banks that finance housing projects.

Mortgage borrowers were caught off guard when the banks increased installments following the introduction of an electronic system. The approved financial instrument was based on Ijara, not Murabaha, transaction. Installments varied in accordance with interest rates. Although it appeared to be a big surprise for customers, the matter has been explained in the contract.

There were deliberate attempts by banks to conceal risks to the borrower. In an article published about three months ago I had mentioned the way out for the borrowers. Lawyers of borrowers who have filed lawsuits against the banks should focus on this matter.

Citizens have expressed their resentment over the Real Estate Development Fund’s move to provide housing loans through banks, instead of giving them directly, because they do not want to mortgage their properties to the banks. They fear that the bank may sell their house at any price to protect its rights, without considering the borrower’s financial situation. There are other logical reasons for people not to take housing loans from commercial banks.

Since the Real Estate Development Fund pays the full interest on loans received by citizens whose salaries are below SR14,000 and part of the interest for those receiving higher salaries, I have made a viable proposal, which is the fund to obtain loans from banks and lend the funds to beneficiaries, instead of the latter directly borrowing from banks.

The borrower will repay the loan to the fund, which in turn will pay back the money to the banks along with the interest. All these procedures can be done automatically without any human intervention. Under this proposal, there will be no additional financial burden on the fund.

The final beneficiary will receive the money monthly and the bank interest will be settled by the fund, whether in full or part. The deeds will remain with the fund as collateral.

The main objective of this proposal is to protect the rights of citizens who have taken home loans from banks, thereby solving many of problems and boosting the construction industry.

I made this proposal considering the present situation and its consequences. Perhaps I am the only Saudi who has not been supporting the fund’s lending program for a long time as I believe that it will not contribute to solving the housing problem in the country.

What I deem suitable is the Ministry of Housing constructs many housing units across the Kingdom to fill the current gap. We are talking about almost a million houses. After that the fund restarts the lending process.

We have learned from official reports about 1 million new housing units, including villas and apartments, in the Kingdom remain unoccupied. I would like to propose that the ministry or the fund purchase these units and sell them to citizens on installments.

The Ministry of Housing and Real Estate Development Fund must realize the reality and focus on the most realistic solutions. We cannot make achievements without investment.

At the same time, we have to take into account the condition of citizens as well as the banks while adopting viable solutions to the housing problem.