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Competition conquers complacency

Competition conquers complacency

The regional housing market may seem an impenetrable minefield right now, but increasing competition amongst lenders is helping the industry open up.

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June 6, 2010 10:27 by



The property lending industry in the Middle East can be a virtual mystery to a newcomer. In the west, TV adverts tell potential homebuyers, “When banks compete, you win!” Western banks are keen to give loans, even to risky borrowers, and the mortgage industry competes to provide these loans. Competition benefits borrowers with increasingly favorable loan terms.

Regionally however, the property lending industry is less developed and less competitive. Industry professionals insist that unrealistically priced real estate must now undergo price correction in order to rebuild market confidence in housing market.

Realistically priced housing will better target the burgeoning youthful middle class in countries like Saudi Arabia, as well as resident buyers in countries like Lebanon.

Lower priced housing will invigorate the mortgage industry, and on the back of cheaper housing options, lending institutions will be better able to finance the real estate sector with lower interest rates, more flexible mortgage options, and longer loan terms.

While interest rates have been declining, the reduction has not kept pace with other factors influencing purchasing power, say analysts. Inflation in the region has outpaced the rise in salaries, and for many families, current mortgage lending rates put home ownership out of their budget. For instance, mortgage rates for Dubai home buyers are around 7 percent, the Gulf News reported this week (though mortgage professionals say this number should ideally decline to around 6 percent by the end of the year).

In Bahrain, current mortgage interest rates are above 9 percent, making the monthly mortgage payment too high for many families where average salaries are less than $3,200 a month.

While lower interest rates are important to affordable housing, so are longer loan terms, variable interest rates, and flexible financing options that provide low- or no-down payment options.

In Lebanon’s housing market, banks are making strides to provide more incentives to local buyers, reversing the trend of courting expat borrowers with the best financing packages.

Because expat buyers, often Lebanese working abroad or GCC nationals, command bigger salaries and more down payment cash, these buyers have often been on the receiving end of sweeter borrowing terms. But recent efforts by Lebanese banks are hoping to serve local Lebanese home buyers and may help level the playing field for local buyers, while boosting the country’s housing market. A number of Lebanese banks have begun offering resident home loans that require lower down payments and the country’s central bank subsidizes a housing loan in liras that analysts expect to “revolutionize the local housing loan market,” reported the Spring issue of Lebanon Opportunities. However, the surge in prices remains a barrier for locals, according to Gulf News.

Developers in Saudi Arabia are looking to better target its youthful, predominantly middle income population with more affordable housing. As these projects gain momentum, the mortgage industry offerings are likely to follow.

The emergence of greater incentives to foreign investors is also invigorating housing in new regional markets, like the Emaar Properties project in Jeddah, expected to be the first in Saudi Arabia to welcome foreign buyers without restriction, as the kingdom looks to ease budgetary dependence on oil, the National reported Friday.

All these factors have combined to see GCC banks gear up for an expected mortgage boom in 18 to 24 months, according to the Khaleej Times. But ultimately, affordable mortgage terms don’t mean much without affordable home prices. Developers, are you listening?



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