Saudi Arabia is home to 500 bln riyals of untapped mortgage potential: Al Rajhi

The size of untapped mortgage potential in Saudi Arabia currently stands at 500 billion riyals ($133.26 billion), according to Riyadh-based Al Rajhi Capital, the investment arm of Al Rajhi Bank.

This is one-third the total loan book (to private sector) of all banks in Saudi Arabia today, which stands at 1,500 billion riyals.

The report found that mortgage potential in the country is still intact and Saudi-listed banks like Al Rajhi, Riyad Bank, and AlJazira are likely to benefit the most.

Around 1.22 million homes are expected to be built from 2020 to 2030 in the Kingdom, which has in the past faced a housing shortage.

Home ownership in Saudi Arabia penetration is expected to increase from 50 percent to 70 percent by 2030, based on the country’s Vision 2030 reform plan, which aims to diversify the economy and enhance overall living standards.

“We assume existing homeowners will not buy additional homes and factor in only non-home owners to buy homes,” the firm said.

Based on Al Rajhi’s estimates, Saudi families with home ownership currently own about two houses on an average per family.

Assuming an increment of 80 billion riyals in the Saudi mortgage market next year, as well as stable market conditions, Al Rajhi believes that related sectors could also benefit, such as building materials. This spillover effect could further lift loan growth in the country’s banking sector, Al Rajhi predicts.

Saudi Arabia’s home ownership penetration rate stood at 50 percent as of 2018, according to official figures.

Housing in Saudi Arabia has been traditionally subsidized, with up to 500,000 riyals interest costs on mortgages covered by the government.