RIYADH: Saudi Arabia’s banks issued SR91.1 billion ($24.28 billion) in new residential mortgages to individuals in 2024 — a 17 percent rise on the previous year, according to official data.

Figures from the Saudi Central Bank, also known as SAMA, show that this is the highest annual mortgage issuance in two years.

The fourth quarter of 2024 accounted for 33 percent of the total, likely coinciding with the declining interest rate environment. This trend underscores the strong demand for home financing in the Kingdom, as well as the impact of monetary policy shifts on borrowing costs.

The Kingdom is steadily progressing toward its goal of 70 percent home ownership by the end of the decade.

According to the latest official data from the Housing Program — an initiative under Vision 2030 — Saudi family home ownership reached 63.74 percent in 2023.

As economic diversification initiatives continue to boost housing development and home-ownership aspirations, the Kingdom’s mortgage landscape is expected to remain dynamic, influenced by both global and domestic trends.

The increase in residential mortgage issuance signals growing confidence in Saudi Arabia’s real estate market. With declining interest rates and ongoing government efforts to expand home ownership, the Kingdom’s housing sector appears poised for sustained growth in the years ahead.

One of the key factors influencing mortgage rates in Saudi Arabia is the Saudi Interbank Offered Rate, or SAIBOR, which serves as a benchmark for floating-rate loans.

Given the Saudi riyal’s peg to the US dollar, fluctuations in interest rates in the North American country have a direct impact on SAIBOR and, consequently, on borrowing costs in the Kingdom.

In September, the US Federal Reserve initiated a shift in monetary policy, cutting interest rates by 50 basis points. This was followed by two additional rate reductions of 25 basis points each in November and December.

The easing of US monetary policy translated into lower SAIBOR rates, making home financing more accessible and contributing to the notable expansion of residential lending.

While the recent decline in mortgage rates has fueled demand, future SAIBOR movements will be contingent on multiple factors, including the Federal Reserve’s policy trajectory, Saudi Arabia’s economic conditions, and banking sector liquidity.

At the third Public Investment Fund Private Sector Forum in Riyadh this month, Saudi Arabia’s Minister of Municipalities and Housing Majid Al-Hogail announced that 65 local developers have invested over SR200 billion in the housing sector, highlighting the private sector’s key role in urban development.

Al-Hogail emphasized that Vision 2030 is driving a transformation in Saudi Arabia’s real estate sector, with developments ranging from affordable housing to luxury projects.

He also stressed the need to redefine city planning to align with economic diversification and the Kingdom’s rapidly growing urban population.

According to the minister, the municipal and housing sectors contributed over 16 percent to Saudi Arabia’s real gross domestic product in 2024, while the real estate and construction sectors attracted nearly 16 percent of total foreign investment inflows.

He further noted that residential transactions in Riyadh increased by 51.6 percent between July 2023 and July 2024, totaling 18,500 sales valued at SR26.6 billion, citing a report from real estate services firm CBRE.

Al-Hogail also highlighted the remarkable growth in real estate financing, stating that the banking sector’s real estate financing portfolio expanded from SR165 billion to over SR850 billion.

He attributed this growth to a stimulating and supportive investment environment, which, he said, has reached a favorable stage for both local and international private sector players.

Saudi Arabia’s banks are adopting multiple strategies to enhance liquidity and sustain real estate lending growth. One key approach is issuing sukuk and conventional bonds to strengthen their capital base, ensuring they have sufficient funds to continue mortgage lending.

Additionally, the Saudi Real Estate Refinance Co. plays a vital role by purchasing mortgages from banks, freeing up liquidity for new loans and improving market stability.

Government support also remains a crucial factor, with initiatives from the Ministry of Housing and the Real Estate Development Fund providing guarantees and subsidies that reduce banks’ lending risks and encourage further mortgage issuance.

Furthermore, Saudi Arabia’s banks are diversifying their funding sources by forming partnerships with global investors and foreign banks, attracting more capital into the real estate financing sector.

At the same time, digital transformation is playing an increasing role, with banks integrating fintech solutions, automated credit assessments, and digital mortgage platforms to streamline loan processing, reduce operational costs, and improve accessibility for borrowers.

These combined efforts are helping banks maintain a steady flow of liquidity while supporting the Kingdom’s growing real estate sector.