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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 Treasury Targets Russia's Gazprombank with New Sanctions

FILE PHOTO: A bronze seal for the Department of the Treasury is shown at the US Treasury building in Washington, US, January 20, 2023. REUTERS/Kevin Lamarque/File Photo
FILE PHOTO: A bronze seal for the Department of the Treasury is shown at the US Treasury building in Washington, US, January 20, 2023. REUTERS/Kevin Lamarque/File Photo
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US Treasury Targets Russia's Gazprombank with New Sanctions

FILE PHOTO: A bronze seal for the Department of the Treasury is shown at the US Treasury building in Washington, US, January 20, 2023. REUTERS/Kevin Lamarque/File Photo
FILE PHOTO: A bronze seal for the Department of the Treasury is shown at the US Treasury building in Washington, US, January 20, 2023. REUTERS/Kevin Lamarque/File Photo

The United States imposed new sanctions on Russia's Gazprombank on Thursday, the Treasury Department said, as President Joe Biden steps up actions to punish Moscow for its invasion of Ukraine before he leaves office in January.
The move, which wields the department's most powerful sanctions tool, effectively kicks Gazprombank out of the US banking system, bans its trade with Americans and freezes its US assets, Reuters reported.
Gazprombank is one of Russia's largest banks and is partially owned by Kremlin-owned gas company Gazprom. Since Russia's invasion in February 2022, Ukraine has been urging the US to impose more sanctions on the bank, which receives payments for natural gas from Gazprom's customers in Europe.
The fresh sanctions come days after the Biden administration allowed Kyiv to use US ATACMS missiles to strike Russian territory. On Tuesday, Ukraine fired the weapons, the longest range missiles Washington has supplied for such attacks on Russia, on the war's 1,000th day.
The Treasury also imposed sanctions on 50 small-to-medium Russian banks to curtail the country's connections to the international financial system and prevent it from abusing it to pay for technology and equipment needed for the war. It warned that foreign financial institutions that maintain correspondent relationships with the targeted banks "entails significant sanctions risk."
"This sweeping action will make it harder for the Kremlin to evade US sanctions and fund and equip its military," Treasury Secretary Janet Yellen said. "We will continue to take decisive steps against any financial channels Russia uses to support its illegal and unprovoked war in Ukraine."
Gazprombank said Washington's latest move would not affect its operations. The Russian embassy in Washington did not respond to requests for comment.
Along with the sanctions, Treasury also issued two new general licenses authorizing US entities to wind down transactions involving Gazprombank, among other financial institutions, and to take steps to divest from debt or equity issued by Gazprombank.
Gazprombank is a conduit for Russia to purchase military materiel in its war against Ukraine, the Treasury said. The Russian government also uses the bank to pay its soldiers, including for combat bonuses, and to compensate the families of its soldiers killed in the war.
The administration believes the new sanctions improve Ukraine's position on the battlefield and ability to achieve a just peace, a source familiar with the matter said.
COLLATERAL IMPACT
While Gazprombank has been on the administration's radar for years, it has been seen as a last resort because of its focus on energy and the desire to avoid collateral impact on Europe, a Washington-based trade lawyer said.
"I think that the current administration is trying to put as much pressure and add as many sanctions as possible prior to January 20th to make it harder for the next administration to unwind," said the lawyer, Douglas Jacobson.
Officials in Slovakia and Hungary said they were studying the impacts of the new US sanctions.
Trump would have the power to remove the sanctions, which were imposed under an executive order by Biden, if he wants to take a different stance, Jacobson said.
After Russia's invasion in 2022, the Treasury placed debt and equity restrictions on 13 Russian firms, including Gazprombank, Sberbank and the Russian Agricultural Bank.
The US Treasury has also worked to provide Ukraine with funds from windfall proceeds of frozen Russian assets.