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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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China Launches Late Stimulus Push to Meet 2024 Growth Target

FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo
FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo
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China Launches Late Stimulus Push to Meet 2024 Growth Target

FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo
FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo

China's central bank on Friday lowered interest rates and injected liquidity into the banking system as Beijing assembled a last-ditch stimulus assault to pull economic growth back towards this year's roughly 5% target, Reuters reported.
More fiscal measures are expected to be announced before China's week-long holidays starting on Oct. 1, after a meeting of the Communist Party's top leaders showed an increased sense of urgency about mounting economic headwinds.
On the heels of the Politburo huddle, China plans to issue special sovereign bonds worth about 2 trillion yuan ($284.43 billion) this year as part of fresh fiscal stimulus, two sources with knowledge of the matter have told Reuters.
Capital Economics chief Asia Economist Mark Williams estimates the package "would lift annual output by 0.4% relative to what it would otherwise have been."
"It's late in the year, but a new package of this size that was implemented soon should be enough to deliver growth in line with the 'around 5%' target," he said.
Chinese stocks are on track for the best week since 2008 on stimulus expectations.
The world's second-largest economy faces strong deflationary pressures due to a sharp property market downturn and frail consumer confidence, which have exposed its over-reliance on exports in an increasingly tense global trade environment.
A wide range of economic data in recent months has missed forecasts, raising concerns among economists that the growth target was at risk and that a longer-term structural slowdown could be in play.
On Friday, data showed industrial profits swinging back to a sharp contraction in August.
"We believe the persistent growth weakness has hit policymakers' pain threshold," Goldman Sachs analysts said in a note.
As flagged on Tuesday by Governor Pan Gongsheng, the People's Bank of China on Friday trimmed the amount of cash that banks must hold as reserves, known as the reserve requirement ratio (RRR), by 50 basis points, the second such reduction this year.
The move is expected to release 1 trillion yuan ($142.5 billion) in liquidity into the banking system and was accompanied by a cut in the benchmark interest rate on seven-day reverse repurchase agreements by 20 bps to 1.50%. The cuts take effect on Friday and Pan, in rare forward-looking remarks, left the door open to another RRR reduction later this year.

Given weak credit demand from households and businesses, investors are more focused on the fiscal measures that are widely expected to be announced in coming days.
Reuters reported on Thursday that 1 trillion yuan due to be raised via special bonds will be used to increase subsidies for a consumer goods replacement program and for the upgrade of large-scale business equipment.
They will also be used to provide a monthly allowance of about 800 yuan, or $114, per child to all households with two or more children, excluding the first child.
China aims to raise another 1 trillion yuan via a separate special sovereign debt issuance to help local governments tackle their debt problems.
Bloomberg News reported on Thursday that China is also considering the injection up to 1 trillion yuan of capital into its biggest state banks.
Most of China's fiscal stimulus still goes into investment, but returns are dwindling and the spending has saddled local governments with $13 trillion in debt.
The looming fiscal measures would mark a slight shift towards stimulating consumption, a direction Beijing has said for more than a decade that it wants to take but has made little progress on.
China's household spending is less than 40% of annual economic output, some 20 percentage points below the global average. Investment, by comparison, is 20 points above but has been fueling much more debt than growth.
The politburo also pledged to stabilize the troubled real estate market, saying the government should expand a white list of housing projects that can receive further financing and revitalize idle land.
The September meeting is not usually a forum for discussing the economy, which suggests growing anxiety among officials.
"The 'shock and awe' strategy could be meant to jumpstart the markets and boost confidence," Nomura analysts said in a note.
"But eventually it is still necessary for Beijing to introduce well thought policies to address many of the deep-rooted problems, particularly regarding how to stabilize the property sector."