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RIYADH: After leading a rally that began in 2018, real estate lending to Saudi banks has slowed over the past year due to slower growth in the retail sector, according to the Saudi Central Bank, also known as the Saudi Arabian Monetary Agency.

In the second quarter of 2021, the mortgage lending growth rate halved to 5.4 percent from 10.8 percent in the first quarter of 2021.

Although mortgage loans from banks increased by 28.2 billion Saudi riyals ($7.5 billion) between January and March 2021 to 502.7 billion Saudi riyals between April and June 2021, their growth rate has slowed compared to the past six quarters.

Moreover, this decline continued the growth trend throughout the second quarter, as the total value of real estate loans reached 638.7 billion riyals.

This drop came after a drop in mortgage bank loans to individuals who have suffered the same fate since the quarter ending in June 2021.

As a result, bank loan growth faltered from 13.6 percent to 5.7 percent in the quarter.

However, this has not been the case during the coronavirus pandemic.

Real estate lending to Saudi banks jumped by 133 percent from 215.6 billion riyals in the second quarter of 2018 to 502 billion riyals in the second quarter of 2021, according to data compiled by Arab News. The period was considered the height of the restrictions of the Corona virus.

The retail sector led this astonishing increase, knowing that individual loans grew by 180 percent, from 128.3 billion riyals to 358.0 billion riyals during this period.

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

On the other hand, corporate loans kept their share of mortgage bank loans declining.

As of 2019, corporate loans accounted for nearly 40 percent of total credit bank loans. However, that number continued to decrease until it reached only 25 percent last year.

So, what is the likely reason for this change in trend? During the coronavirus outbreak, the Saudi government has taken it upon itself to assist citizens in their search for an affordable mortgage plan.

The government achieved this by eliminating the 15 per cent value-added tax on real estate transactions and instead imposing a lower tax on real estate transactions at 5 per cent.

In fact, first-time Saudi homebuyers have been exempted from transactions of up to one million Saudi riyals, according to a 2021 report by Bloominvest entitled “The Residential Market in Saudi Arabia and Its Impact on the Banking Sector.”

Banks later increased mortgage loans to align with government plans to boost home ownership. This trend was demonstrated by the new residential real estate financing for individuals provided by the flawless growth of banks, which reached an all-time high of 245 percent year-on-year in the third quarter of 2019 at SAR19.5 billion compared to SAR 5.7 billion. Saudi riyals in 2019. Third quarter 2018.

According to the data of the Saudi Arabian Monetary Agency, this has led to an increase in the total value of new mortgage loans provided by banks to individuals by 91 percent.

However, like mortgages, new mortgages to individuals have declined over the past year. The number of new real estate finance contracts decreased by 35 percent from 65,667 in the first quarter of 2021 to 42,693 in the second quarter of 2021. The value of new home finance loans decreased by 33 percent, from 49.0 billion riyals to 32.8 billion riyals During the first quarter of 2021. Same period. It also decreased to 31.2 billion Saudi riyals in the second quarter of 2022.

Contractual and value-added mortgage loans fared slightly better year-over-year in the second quarter of 2022, which could have indicated the potential for recovery; However, this was offset by another sharp drop in the quarterly values ​​of mortgage loans and contracts.

Therefore, it appears that the future of mortgage loans to individuals will continue to downward spiral.

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