"The regulation in its present form does not fully address issues related to seizures of properties and how Saudi banks are expected to participate in the suggested format stipulated in the laws published thus far," said Mahmood Akbar, equity research analyst at NCB Capital. Indeed, we believe that some banks prefer the current framework (wage-assignment) where they have ownership of the property. However, we anticipate short-term price increases in the banking sector and the small-cap stocks of real estate. ?
The final draft approved by three of the five acts forming the real estate and financing issued by SAMA relate to the financing of the real estate (1) (2) Financial Leasing (3) monitoring of finance companies. However, laws related to seizures in the case of payments, "The Act" and "registered right mortgage real estate," are yet to be published.
"Focuses mainly on finance companies and there is a reference limited to banks, said Akbar."Given the reference limited to commercial banks, coupled with the fact that laws stipulate that the finance company may engage only in real estate financing, there is little clarity on whether if the laws apply to commercial banks. This makes it possible, even if it is still uncertain, that the objective of the regulation is to separate the function of loans from commercial banks similar to separating commercial banks in the mortgage-backed securities business. The regulation not to address issues related specifically to the banking sector in particular in what concerns the risk weights. If the banks need to create separate entities to deal with mortgages, the benefit of the proposed legislation is realized only in the long term. ?
Financing and refinancing of companies will be heavily regulated since SAMA has introduced a set of strict rules to ensure the stability of the new sector and protect borrowers. This includes, inter alia, promoting transparency in activities (articles 6 and 26, law of Finance, real estate), preventing speculative real estate investments (articles 23 and 24 of the Finance Act of real estate) and fair pricing (section 20 of the law of real estate finance). "We think that it is positive for the Kingdom as fully, it addresses several issues facing the real estate market", said Akbar.
A real estate company by the name of Saudi society of real estate refinancing refinancing should be formed by the Public Investment Fund and will have a paid-up capital of SR 5 billion. This new entity will buy the mortgage from the real estate companies, securitize them and issue mortgage-backed securities. This will offer investors alternative channels for exposure of real estate, which can "liberate" the non?producing lands belonged to rich families.
"In our opinion, Act is part of a vision in the long term and not the benefits short-term business," said Akbar. "While we believe that the draft law will be way and benefits the economy long term, we believe that it is unlikely to have an immediate positive impact on real estate companies or banks. Indeed, we see the regulations as an attempt to establish a stable, efficient and sustainable market for mortgages which should support long-term Saudi social reforms. ?
Akbar said: "However, we believe that the draft law in its current form does not address the underlying problem - lack of decent, affordable housing. For example, one of the major banks in Saudi Arabia said that it has more than 400,000 eligible clients (based on the salary assignment) for a mortgage, but have yet to find a suitable property (this figure has doubled since last year). "Therefore, even if the mortgage loan process was facilitated by the institutions of private property (i.e., the ability of lenders to expel holders of mortgages at home in the event of non-payment) borrowers middle classes will be found a limited amount of adequate shelter."
Akbar said: "in our review we do step factor of additional growth in the models of our banks to incorporate the proposed mortgage interest." Indeed, we believe that the recent increase in real estate consumption financing corresponds to the "chase for yield"banks rather than in anticipation of regulatory changes.? Given the recent decline in NIMs in the business segment, we see gradually well changing banks mix more towards the sector of finance consumers and in particular real estate financing that would limit the decline in margins. The management of most of the banks that we met recently indicated that they expect to see credit growth in 2013 by higher consumer real estate financing. ?
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