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Rise of Interests Predicts Further Decline in Real Estate Financing in Saudi Arabia

 The decline in real estate financing is likely to increase the supply of real estate products in the Kingdom. (Asharq Al-Awsat)
 The decline in real estate financing is likely to increase the supply of real estate products in the Kingdom. (Asharq Al-Awsat)
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Rise of Interests Predicts Further Decline in Real Estate Financing in Saudi Arabia

 The decline in real estate financing is likely to increase the supply of real estate products in the Kingdom. (Asharq Al-Awsat)
 The decline in real estate financing is likely to increase the supply of real estate products in the Kingdom. (Asharq Al-Awsat)

Real estate financing sector for individuals in the Kingdom is expected to witness a further decline, following a decision by the Saudi Central Bank (SAMA) to raise the rates of Repurchase Agreement (Repo) and the Reverse Repurchase Agreement (Reverse Repo) by 25 basis points each.

The volume of real estate financing for individuals in Saudi Arabia recorded a decline during the second quarter of 2023, reaching SAR 16.9 billion ($4.5 billion), compared to SAR 22.7 billion ($6 billion) in the first quarter of the year.

One of the main reasons for this decline is the high interest rate and its impact on borrowing costs, which in turn will be reflected in sales and thus lead to a drop in residential real estate prices.

The head of Amaken International Group, economist Khaled Al-Jasser, told Asharq Al-Awsat that raising the interest rate would affect the financial market, as investors would prefer to withdraw their liquidity and deposit it in banks or valuable assets, thus preserve the value of the purchasing capital, or at least its stability.

He added that SAMA’s decision to raise the interest rate reflected the consistency of financial goals in maintaining monetary and financial stability. He explained that the new move would curb the inflation.

Last month, the Saudi Central Bank decided to raise the rate of Repurchase Agreement (Repo) by 25 basis points to 6.00 percent, and the rate of Reverse Repurchase Agreement (Reverse Repo) by 25 basis points to 5.50 percent. These decisions come in line with SAMA’s endeavor to preserve monetary stability.

For his part, economic expert Ahmed Al-Jubeir told Asharq Al-Awsat that SAMA’s decision would lead to a further decline in the volume of real estate financing for individuals during the next stage, which would affect real estate prices in the Kingdom. He added that the governmental reforms were aimed at containing the inflation rate.

Real estate and personal finance consultant and expert, Suhail Asiri, explained that the decline in the demand for real estate financing was due to expectations for a drop in prices.

“The Saudi Central Bank report reveals that the financing companies sector in the Kingdom has grown by 10.8 percent over the past year,” he told Asharq Al-Awsat.

Asiri added: “The report shows an increase in total assets by 6.5 percent to reach SAR 57 billion ($15.2 billion), and an increase in the total financing portfolio by 10.8 percent to SAR 75.45 billion ($20.1 billion), while financing granted to the individual sector constituted the largest part of the net financing portfolio.”

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US Economy Grew at Solid 3% Rate Last Quarter, Government Says in Final Estimate

FILE - The New York Stock Exchange, at rear, is shown on Sept. 24, 2024, in New York. (AP Photo/Peter Morgan, File)
FILE - The New York Stock Exchange, at rear, is shown on Sept. 24, 2024, in New York. (AP Photo/Peter Morgan, File)
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US Economy Grew at Solid 3% Rate Last Quarter, Government Says in Final Estimate

FILE - The New York Stock Exchange, at rear, is shown on Sept. 24, 2024, in New York. (AP Photo/Peter Morgan, File)
FILE - The New York Stock Exchange, at rear, is shown on Sept. 24, 2024, in New York. (AP Photo/Peter Morgan, File)

The American economy expanded at a healthy 3% annual pace from April through June, boosted by strong consumer spending and business investment, the government said Thursday, leaving its previous estimate unchanged.
The Commerce Department reported that the nation's gross domestic product — the nation's total output of goods and services — picked up sharply in the second quarter from the tepid 1.6% annual rate in the first three months of the year, The Associated Press reported.
Consumer spending, the primary driver of the economy, grew last quarter at a 2.8% pace, down slightly from the 2.9% rate the government had previously estimated. Business investment was also solid: It increased at a vigorous 8.3% annual pace last quarter, led by a 9.8% rise in investment in equipment.
The final GDP estimate for the April-June quarter included figures showing that inflation continues to ease, to just above the Federal Reserve’s 2% target. The central bank’s favored inflation gauge — the personal consumption expenditures index, or PCE — rose at a 2.5% annual rate last quarter, down from 3% in the first quarter of the year. Excluding volatile food and energy prices, so-called core PCE inflation grew at a 2.8% pace, down from 3.7% from January through March.
The US economy, the world's biggest, displayed remarkable resilience in the face of the 11 interest rate hikes the Fed carried out in 2022 and 2023 to fight the worst bout of inflation in four decades. Since peaking at 9.1% in mid-2022, annual inflation as measured by the consumer price index has tumbled to 2.5%.
Despite the surge in borrowing rates, the economy kept growing and employers kept hiring. Still, the job market has shown signs of weakness in recent months. From June through August, America's employers added an average of just 116,000 jobs a month, the lowest three-month average since mid-2020, when the COVID pandemic had paralyzed the economy. The unemployment rate has ticked up from a half-century low 3.4% last year to 4.2%, still relatively low.
Last week, responding to the steady drop in inflation and growing evidence of a more sluggish job market, the Fed cut its benchmark interest rate by an unusually large half-point. The rate cut, the Fed’s first in more than four years, reflected its new focus on shoring up the job market now that inflation has largely been tamed.
Some other barometers of the economy still look healthy. Americans last month increased their spending at retailers, for example, suggesting that consumers are still able and willing to spend more despite the cumulative impact of three years of excess inflation and high borrowing rates. The nation’s industrial production rebounded. The pace of single-family-home construction rose sharply from the pace a year earlier.
And this month, consumer sentiment rose for a third straight month, according to preliminary figures from the University of Michigan. The brighter outlook was driven by “more favorable prices as perceived by consumers” for cars, appliances, furniture and other long-lasting goods.
A category within GDP that measures the economy’s underlying strength rose at a healthy 2.7% annual rate, though that was down from 2.9% in the first quarter. This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending.
Though the Fed now believes inflation is largely defeated, many Americans remain upset with still-high prices for groceries, gas, rent and other necessities. Former President Donald Trump blames the Biden-Harris administration for sparking an inflationary surge. Vice President Kamala Harris, in turn, has charged that Trump’s promise to slap tariffs on all imports would raise prices for consumers even further.
On Thursday, the Commerce Department also issued revisions to previous GDP estimates. From 2018 through 2023, growth was mostly higher — an average annual rate of 2.3%, up from a previously reported 2.1% — largely because of upward revisions to consumer spending. The revisions showed that GDP grew 2.9% last year, up from the 2.5% previously reported.
Thursday’s report was the government’s third and final estimate of GDP growth for the April-June quarter. It will release its initial estimate of July-September GDP growth on Oct. 30.