White Papers

Homeownership is increasingly becoming a strong symbol of family stability, and for many, a reflection of personal achievement. Population growth, urbanization, and the growing trend away from extended families, amongst others, have contributed to increased demands for homeownership. This demand for housing has reached its peak in many emerging markets. Consequently, economies are saddled with the dual responsibilities of creating new homes and making it possible for individuals to purchase these through affordable financing.

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This paper will outline best practices for mortgage financing regulatory frameworks in the aftermath of the global financial crisis that was triggered by widespread mortgage market failures. We then analyze the existing regulatory framework in Saudi Arabia with the goal of offering ideas for a regulatory blueprint for mortgage financing here. Finally, we make recommendations for the gradual incorporation of a set of relevant regulatory structures from our examination of international best practices.

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Demand for real estate financing far outpaces the ability of financial institutions to lend within the GCC where mortgages constitute less than 5 percent of the region’s gross domestic product compared to over 55 percent for the United Kingdom and 32 percent for France. A rising trend of real estate ownership, the growing community of expatriate workers, an increasing young population and a project finance market with approximately $1 trillion worth of developments have all contributed to the fast growing demand for financing. This provides unprecedented opportunities to originate mortgage assets within the GCC. However, financial institutions tapping into the region’s underserved mortgage market also face the perils of an environment where customer and collateral information is limited, the regulatory framework for mortgages is evolving and business models for mortgage origination are in a nascent stage.

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