The adoption of long-delayed new mortgage laws in Saudi Arabia may spark an unprecedented housing boom.
"It will definitely boost operations by everybody," says Dr Khaled Sedky, the chief portfolio officer of Palm Hills Developments, a home builder based in Egypt. "We all understand Saudi Arabia has a need for residential product, but it is not accessible to everybody."
Only about 30 per cent of Saudi households own their homes. If the market regulations are approved in the next few months, as expected, the pent-up demand for housing could create a US$32 billion (Dh117.53bn) a year lending business, according to Capitas Group International (CGI).
To satisfy demand, more than 150,000 homes a year will have to be built in the next 10 years, CGI estimates. Most of the demand will come from low and middle-income families, analysts say.
"The real question is: do we have the right balance, from a supply perspective?" said Fahd al Rasheed, the chief executive of Emaar EC, which is building King Abdullah Economic City, a 168 million square metre mixed-use project on the Red Sea north of Jeddah.
Fifty per cent of Saudi housing demand is expected to come from low-income families that typically make less than 60,000 riyals (Dh58,760) a year, Mr al Rasheed says.
"The question is: are we ready to serve 50 per cent of the market?" he says.
With a surge of building in the housing sector, the volume of construction in Saudi Arabia could double, reaching $400bn by the end of 2015, says Husein Odeh, the general manager of the construction company Turner Arabia.
"But it all depends on the lending," Mr Odeh says. "If lending happens, the private sector will move."
Some forms of Sharia-compliant mortgages are available in the kingdom, but they are expensive and little-used. Fewer than 1 per cent of homes are financed, compared with 7 per cent in the UAE and 66 per cent in the US, according to Deutsche Bank research.
The Saudi government has for 10 years debated expanding the mortgage industry. Opposition focused on the onerous aspects of repossessing property and the risk for banks, in addition to the difficulties in following principles of Islamic law.
In July, the Shura Council, Saudi Arabia's legislature, agreed to a sweeping blueprint that would allow for regulating mortgage companies and provide legal guidelines for repossessing property. The measures are awaiting approval by King Abdullah. Many observers believe the package of laws could open the market to new lenders with more capital.
"Until they formulate a mortgage law, there will be a limited number of players in the market with limited capital to invest," says Paul Loiacono, the chief operating officer at Deutsche Gulf Finance (DGF).
DGF, a partnership between Deutsche Bank and a group of Saudi investors, started offering Sharia-compliant mortgages this year. Typically, such mortgages are structured like leases, with buyers paying annual fees.
More than anything, the new laws will provide a structure for new companies to enter the market with confidence that the courts will support their contracts, Mr Loiacono says.
"With the mortgage laws you will see more competitors come in, and the competition will force them to reach new markets," he says.
But not everyone is predicting a rush of homebuying. "It is not a process where you are going to see long queues tomorrow applying for mortgages," says Imad Damrah, the country director for Saudi Arabia at Colliers International.
The lack of housing supply will constrain sales activity in the short term, Mr Damrah says. He believes the government was wise to delay the mortgage laws at a time when prices are inflated and few affordable homes are available. The price of a small apartment rose 8 per cent in the second half of this year, partly in anticipation of the mortgage laws, Banque Saudi Fransi reported. Residential land prices jumped 8.3 per cent.
But there is little doubt the laws could change the face of the market, Mr Damrah acknowledges.
"It will support the whole real estate market and allow everyone to go ahead with their plans," he says.
For now, the industry is still waiting. While most believe the laws will be approved, there is no clear indication of when that will happen.
"It is more imminent than ever before," says Naveed Siddiqui, the chief executive of CGI.
Although some remain sceptical about the effect of the mortgage reform, the industry is ready to move forward, he believes. "If it is not passed in the next two or three months," he says, "there will be tremendous frustration."