(MENAFN - Arab News) Several questions have been raised since the Kingdom's passing of the mortgage law. This is because of various interpretations and divergent viewpoints of writers and analysts about the impact of the law.
Some of them say that citizens will be the biggest losers and that banks and real estate financing companies would be the major beneficiaries. Some others expressed their viewpoints contrary to this. All these lack a comprehensive outlook about this landmark law.
How the citizen could take advantage of the law is the significant thing. I have received several queries from individuals on how they can benefit from the mortgage law.
Here I am trying to find out an answer to this simple question: An ordinary citizen starts to apply this law when he seeks to buy a house through financing from banks or mortgage financing companies. The first step in this regard is his selection of the type of house he wants to buy. There is a condition that the house should be a newly constructed one. Then, he reaches an agreement with the seller for an amount of SR 1 million, for example.
The buyer then starts exploring the prospect of collecting the amount through financing companies or banks. The amount of financing may vary from one firm to another. But the procedures are almost the same. They consider the income of the buyer and his credit history. Did he owe any previous loans? Was he a defaulter earlier? These are some of the questions answered. The lending firms will also consider buyer's profession and experience.
When the buyer starts receiving credit, banks and financial firms begin inspecting the house and ensure whether construction of the house is in line with the Saudi construction standards. They also assess value of the house from at least two evaluation companies so as to ensure that price of the house is reasonable.
After completion of these procedures, banks and financial firms will seek less than or more than 20 percent of the value of house as an advance payment from the buyer. If both parties agreed on this, the buyer will deposit 20 percent of the value in his bank account and the bank then extends loans amounting to SR800,000. Bank then buys the house from the seller after paying SR1 million.
A check for the amount in the name of the bank will be kept with the notary. Accordingly, the bank will sign a lease agreement with the buyer for owning the house for 25 years on the basis of an annual three percent murabaha financing. The buyer needs to pay about SR 4,666 per month or SR56,000 annually. The monthly installment of repayment may be more or less than this amount, and that was in accordance with the individual's income and the murabaha rate.
There have been tremendous changes in the situation of house financing before and after issuing the mortgage law. Before passing the law, it was not possible for banks to transfer ownership of house to the name of the buyer directly but only through alliance with a real estate company. Secondly, period of repayment may not exceed 15 years.
But after approval of the mortgage law, direct transfer of ownership to the buyer by the bank reduced risks especially insurance risks. This would also lead to reducing housing cost with the ability of the bank to extend loans for years up to 30 in accordance with the age of the citizen and his proximity to the retirement age.
Mortgaging house in the name of the bank and leasing it to the buyer with a provision to own it is one of the major advantages of the law. If there is any future damage to the house or poor handling of cracks or falling, it would be borne by the owner (bank) and the client is entitled to re-occupy the home or leave it under a mutual agreement with the bank or through a judge who will directly implement the decision.
As long as the house is in good condition, the individual is required to make the payment. If he defaulted for three months or more, the bank can approach the judge to enforce his eviction, according to the new regulations that are expected to be issued by the Saudi Arabian Monetary Agency (SAMA) soon. Such an eviction would not be made if the individual loses job or incapacitated to do work and thus becomes an insolvent.
I hope that the SAMA regulations would shed light on this with details about protection of individuals, meeting the risks by insurance companies and such other things. In case of the death of the individual, his heirs would inherit the house and they will be exempted from settling outstanding payments that may be borne by the insurance companies.
In short, individuals will benefit a lot from the mortgage law than that of the bank itself. If they did not see any mortgage financing, the banks can extend loans for various other purposes. As for individuals, they see no other way except banks and financial companies to get a financing.
There are only limited options in front of them, especially because of the difficulties to get loan from the Real Estate Development Fund or relatives or friends.
Those who perceive otherwise, they look at the mortgage law upside down. Here the basic thing is commitment to make the payment.
Those who perceive that defaulting is the basic matter, then it is a pessimistic view from which only those who furnish us with dreadful and non-existent options can take advantage of.