(MENAFN - Arab News) The Saudi Arabian Monetary Agency (SAMA) intends to establish an index for real estate prices, said Mohammed Al-Shaya, the general manager of a financial supervisory company.
"This index will be a benchmark and reference, similar to the stock market index. Such precautions help in avoiding a real estate crisis in the future," said Al-Shaya in a seminar organized by the faculty of economics and commerce in Qassim University.
Experts participating in the seminar said that land prices are high, constituting almost 60 percent of the total cost for building a house, which therefore leads to a real problem in the real estate sector.
Seven institutions discussed mortgage issues and drew out important points for legislators to take into account when establishing laws for the mortgage sector.
"This seminar comes in response to the regulations issued by the Cabinet on 12/8/1433 regarding finance and mortgages. Its importance stems from the pivotal and essential role of real estate in the Kingdom, as it is the second largest sector," said Khalid Al-Hamoudi, president of Qassim University.
Al-Hamoudi stressed the fact that the real estate sector is the second
largest in the nation's economy; its volume is more than a trillion riyals with a growth of 6 percent per year. It contributes to 9.5 percent of the country's GDP.
SAMA announced earlier on its website the codes for the regulation of mortgage finance, refinance companies, lease finance and rent contracts.
Obaid Al-Mutairi, dean of the faculty of economics and commerce, said the seminar aimed to serve the business community and raise awareness about the real estate market mechanisms from the perspective of borrowers and lenders.
The main spokesman at the seminar, former member of Shoura Council Falah Subaie, said the codes contain rules for organizing the activity of mortgage finance, organizing government support and mechanisms of repayment and registering the contracts of lease finance, as well as controlling and reviewing prices.
On the other hand, Rashid Al-Olaiwi, Islamic economic professor in Qassim University, discussed the relation between mortgage and lease finance and Islamic law (Shariah). "Islamic laws in this regard are not constrained. They serve the best interests of everybody, so that mortgage problems can be avoided," he said.
Al"Olaiwi suggested that these codes and regulations be submitted to a panel of senior scholars so that all parties can accept them.
A number of speakers highlighted the problems and obstacles facing the real estate sector and its development. One of the issues tackled during the seminar revolved around the fact that the real estate market in the Kingdom is still fledgling, lacks organization and the number of developers is limited, according to Abdulelah Al-Shaikh, CEO of Saudi Home Loans.
Other issues discussed included the wide gap between the cost of building a house and income levels. Most Saudi families and individuals are already constrained by consumer loans. These loans, in addition to credit card loans, amounted to SR 285 billion in the last half of 2012, exceeding public debt by SR 57 billion.
Participants said that the catalyst for any change in the sector would be the speculative activity, which in turn will affect price levels.
There are several gaps in the real estate market system, mainly the gap between supply and demand, the high prices of houses accompanied by the poor financial status of citizens and other regulatory and developmental factors.