Saudi Arabia's mortgage loans set to see further growth in 2021: Al Rajhi Capital

Riyadh City

Mortgage loans in Saudi Arabia reported phenomenal growth in 2020, jumping 60% year-on-year, with an additional 30% increase likely in 2021, Al Rajhi Capital said in a new report.

The increase was driven by lesser avenues to spend on vacation as international travel was curtailed, stabilizing housing prices after a downward trend in addition to the government’s regulatory changes, the focus of banks on property loans, and surplus liquidity after the COVID-19 pandemic.

According to Al Rajhi Capital, mortgages will continue to form a major portion (68%) of the net loan origination in 2021 followed by 65% and 57% in 2022 and 2023, respectively, putting retail banks at a significant advantage.

National Commercial Bank is expected to see robust growth in real estate loans and will continue to dominate the sector.

On the other hand, Riyad Bank kicked off a major campaign and focused on maintaining a fair market share. Technology integration, review of new products by the Real Estate Development Fund and overall diversification of loan book in terms risk appetite were principal reasons behind the lag in Q3 2020, the report said, indicating that bank is no longer facing technology-related issues.

Saudi British Bank (SABB) is looking more actively in the mortgage segment, given the percentage of home loans as a percentage of GDP is still low in the Kingdom. The bank is witnessing an increase in the savings of Saudi consumer, the brokerage said.

Furthermore, Al Rajhi Capital noted that mortgage rates, in general, are likely to remain low, which will keep yields low across all product categories. However, the mortgage will continue to be the best product in terms of risk and return.

The continued government support lowers the risk of default providing much greater earnings visibility to banks, the report added.