Suppose you are a king. And suppose you have a restless, mostly young population, high unemployment, with most people having to rent because housing and land are too expensive. Few people can get mortgages, because they involve large down payments and high interest rates. Also suppose that you have a big country, lots of land relative to population, and a huge government surplus. What to do?
You could examine why housing is so expensive, and whether there’s a way to make more land available. Maybe that’s happened in Saudi Arabia, but recent news reports give no indication. Instead, the Saudi solution is to encourage the mortgage industry and expand credit. Will that make housing cheaper? Will that make it easier for an underemployed population to get decent housing? Or will it drive up the price of land and feed what seems to be an already-building bubble? It may be that the Saudi objective is to get more of their people into debt-slavery so they’ll faithfully serve the state. I don’t know.
What really puzzles me is how mortgage interest fits into an Islamic-dominated state. Possibly this is like the “Islamic Finance” offered by some U S banks, where no interest as such is charged, but either the price is inflated to compensate for the fact that it will be paid gradually, or the “homeowner” is technically a renter until enough rent has been paid to cover the cost plus what, to others, would be interest.
Bloomberg says the King pledged more than $82 billion for housing, but does not say whether this comprises direct government grants, or is simply some amount of debt which homebuyers will contract. It also says that
Saudi Arabia’s mortgage law will change the way home finance is regulated, from registering mortgages to prosecuting police officers who refuse to carry out eviction orders.
This will be interesting to watch, preferably from a distance.
More about Saudi housing and morgages:
