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Banks urged to reduce housing loan charge to 3%

Saudi Arabia, April 30, 2018

Housing loan applicants have urged authorities to bring down the profit rate (7.43%) charged by commercial banks in the country on their loans and said the rate should be reduced to three percent to make it affordable to citizens.

Commercial banks, which have reached an alliance with the Housing Ministry and Real Estate Development Fund to provide housing loans, have started presenting various housing products to its clients, following the Murabaha and Ijara systems of Islamic finance.

Customers are allowed to pay back their loans in easy instalments by the banks while charging 7.43% for the service. Experts said the profit rate charged by the banks was higher than what is affordable by citizens and said it should not exceed 3% annually.

Economist Ahmed Al-Shahri said the ministry and the banks that have allied with it should review the charge imposed on housing loan subscribers. “The banks should know that they have got the state guarantee and this is a great advantage for them,” he told Al-Watan Arabic daily.

He said the 7.43% rate charged by banks on housing loans is very high, adding that the rate should not exceed three percent. He said the imposition of high rates on housing loan would affect the liquidity of citizens and would have a negatively impact on other economic sectors.

“This high financial cost to build own houses will not be affordable to most citizens in the country,” Al-Shahri said asking authorities to revise the rate. He proposed an agreement between the ministry and Saudi Arabian Monetary Agency to give housing loans for a charge of 2% and said it would help people having medium and limited income to build their homes.

Khaled Abdulkareem Al-Jasser, a member of the real estate finance and evaluation committee at the Riyadh Chamber of Commerce and Industry, said banks are using deposits of customers to give housing loans. So they should reduce their service charge for housing loans.

He said the ministry should put pressure on banks to reduce service charge, especially when it provides them more than 1.2 million customers (who are in the waitlist of the real estate fund) to take housing loans.

“Profit rates of housing loans never exceeded 1.5% and citizens would not be able to afford if the rate exceeds 2%,” he pointed out. Banks are the major beneficiaries of the housing program, which involves zero percent risk.