Facing housing crunch, Saudi Arabia edges to allowing mortgages
Cairo, Egypt (TML) – The day a Saudi will be able to walk into a bank and walk out with a mortgage is getting closer after the country’s Shura Council this week approved a much anticipated mortgage law.
Getting a mortgage industry up and running has wide-ranging implications, not just for ordinary Saudis, for whom home ownership is beyond the financial reach of many, but for the economy and its building industry, which analysts say will benefit from the resulting surge in demand and construction.
“One of the many things it would do is encourage new housing development,” Matthew Green, associate director of Middle East research at CB Richard Ellis, a U.S. property services firm, told The Media Line. “Saudi Arabia has an undersupply in residential property. It would encourage developers into the market. It would allow those who cannot at the moment afford to buy their own home.”
The mortgage law is one of a host of reforms the kingdom has undertaken in the past several weeks as it nervously tries to douse any potential flare-up of unrest of the kind that has spread across the Middle East. While the kingdom has shunned political change, the country’s housing shortage has emerged as a target area for people-pleasing action.
King Abdullah announced plans earlier this month to spend $15 billion to build 500,000 new homes and fund more generous government loans to buyers as part of a massive economic stimulus program. Last Friday, the Saudi state news agency announced the establishment of a Ministry of Housing to tackle the growing crisis.
Already the most populous nation in the Gulf, the number of Saudis has grown 20% since 2002. Demand for homes is going to swell in coming years as the country’s young population reaches the stage in life when they marry, start a family and want a home of their own. Some 47% to the country’s current indigenous population of 18.5 million are under the age of 18.
But the government’s plan to develop 500,000 units won’t come close to addressing demand, according to Banque Saudi Fransi. They forecast the country will need to add 1.65 million new homes to its stock by 2015. Credit Suisse estimated demand is even bigger, saying the country will need some two million more units by 2014.
More than half of all Saudis rent due to the high prices of land and housing, which have become unaffordable for low- to middle-income families because mortgage lending isn’t an option for financing a home purchase. Ordinary bank loans entail substantial down payments, short terms of no more than 15 years and high interest rates. As a result, most people have to draw down on savings.
CB Richard Ellis says Saudi tiny mortgage market, not counting government home loans, equals 1% of gross domestic product, compared with 7% in the United Arab Emirates and 16% in Bahrain.
Not surprisingly, given the limited options for home buyers, home-building is geared toward the wealthiest. Jones Lang LaSalle, a U.S. real estate services company, estimated in a report March 27 that 70% of all new homes were built for people in the top 10% income group. Aside from the lack of financing for low- to middle-income families, new construction is typically done on a small scale of five units or less, which is more expensive, it said.
Indeed, CB Richard Ellis estimates about 15% of the country’s housing is vacant because the people who need homes can’t afford the ones being built
“There’s a long-term problem in Saudi Arabia with shortage of housing partly related to inability for people to get mortgages,” Daniel Kaye, senior economist at the National Bank of Kuwait, told The Media Line.
Officials have been dragging their heels for years on establishing a mortgage market, but Shuaa Capital, a Dubai-based investment bank, said growing pressure for reform should speed up the process.
“Of course, the proposed law will not be implemented overnight,” Shuaa analyst Roy Cherry said in a March 29 report. “We expect the Shura Council’s approval to require a number of follow-up steps including the king’s signature before it actually becomes enacted. However, given the heightened reform friendliness of MENA governments over the past couple of months – this should not take long (at least in relative terms).”
Shuaa cited eight companies, among them Dal Al-Arkan, Saudi Arabia’s biggest developer, and builder Arabtec Holding as the companies most likely to benefit.
The downside for consumers is that the law will make it possible for lenders to repossess homes if the borrower falls behind in his mortgage, a process that is virtually impossible under the current law. The government’s Real Estate Development Fund, which current dominates the residential real estate finance market by offering shariah-compliant interest-free loans, is rumored to have a significant default rate.
Home prices will probably also rise. Even before the mortgage legislation was announced, Jones Lang LaSalle said it expected rents and land prices in Saudi Arabia to climb 10% over the next two to three years as the housing aid and other stimulus measures boost demand and purchasing power.
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U.S. stocks tumble, 3-day gain streak ends
New York, NY, United States (AHN) – U.S. stocks tumbled on Monday ending a three-day gain streak as investors shrugged off a report of higher consumer spending in February and retreated over geopolitical concerns.
The Dow Jones Industrial Average lost 23 points or 0.2 percent to close at 12,198. Home Depot was the biggest blue-chip decliner after announcing it will sell a $2 billion debt offering.
The Standard & Poor’s 500 Index slid 3.6 points or 0.3 percent to 1,310, dragged by Marriott International’s slump.
The Nasdaq Composite Index shed 12 points or 0.5 percent to 2,731 with eBay among the losers after announcing it will acquire GSI Commerce for $2.4 billion.
Oil for May delivery declined $1.42 to $104 per barrel.
Gold futures for April delivery fell $6.60 to $1,420 per ounce.
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Australian dollar rises to record highs against US dollar in Asian currency trading
Canberra, Australia (AHN) – Australia’s dollar rose to record highs in Asian currency trading against the U.S. dollar on Wednesday.
The increase in its currency value came from two factors.
One was the rising demand for Australian commodities fueled by fast-growing economies in the developing nations of China and India.
The other was high demand for currency because insurers are paying damage claims for rebuilding and repairing of properties heavily damaged by the December floods in the Queensland region.
Australia’s dollar rose to a 29-year high in value of $1.0318 in currency pair trading. That is the highest since the country allowed its currency to float in value beginning in 1983.
The actual cash rate is now 4.75 percent, which is a good yield.
In addition, Australia’s dollar rose to 85.69 yen against the Japanese yen, up from 75.05 two weeks ago.
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FTSE today: market report – as it happened March 29, 2011
US stocks close higher, shrugging off downgrades of Portugal and Greece
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Israeli central bank determined to gain control of Israel’s growth engine
Jerusalem, Israel (TML) – The Israeli growth engine has powered the economy through wars, a global financial crisis and turmoil in the Middle East, but Stanley Fischer, the country’s central banker, is now determined to get a grip on the controls.
Fischer took economists and the financial markets by surprise late on Monday by lifting the Bank of Israel’s base lending rate 0.5 percentage point to 3%. While the rate is low by historical standards, the bank has doubled the rate in just nine months. More hikes are likely to come, the economists said.
Israel’s economy grew by 4.6% last year, capped by a 7.7% annual rate in the final quarter of the year. Even as oil prices are climbing and regional unrest raises political uncertainty for the country, there has been little sign that the expansion is cooling very much. The Bank of Israel’s S index, a barometer for economic activity, rose a sharp 0.4% in February.
But the heady rate of growth has begun to show its dark side in higher consumer prices, a development of major concern for a country with a long and bitter memory of hyperinflation. The consumer price index (CPI) rose 4.2% in the 12 months to February, well over the bank’s target range of 1% to 3%. Economists see inflation slowing over the next year, but not enough to bring it back into the range.
“He made a mistake. He didn’t understand the significance of the inflationary danger,” Michael Sarel, head of research at Harel Group, told The Media Line. “It’s a step that was very much needed. It’s a pity he didn’t act earlier.”
Until Monday, Fischer had been steering interest rates higher, but only gradually, as he tried to balance his mandate to contain inflation with the need to prevent the shekel from appreciating by boosting interest rates much higher than in other developed economies. A stronger shekel hurts export, a key sector for the Israeli economy, by making
costs measured in dollars higher.
Except for a brief dip in 2008, Israeli gross domestic product has grown between 4% and 6% annually since 2003. The expansion has proceeded even as the world economy was reeling from the fallout of the U.S. housing market and during wars with Hizbullah in Lebanon and Hamas in the Gaza Strip.
With the interest rate less than inflation and likely to remain so for some time, Fischer acted too slowly in raising interest rates, most economists say. Monday’s unusually sharp rate increase marks an “admission of failure to some extent,” Citigroup Global Markets said in a report on Tuesday. It said investors are now looking for rates to be pushed up to as much as 4.5% by the end of the year, a forecast it labeled as “excessive.” Most economists and the central bank itself said it would likely be about 4%.
But Citigroup and others said Fischer may now have changed his strategy and wants to rely on a stronger shekel to mitigate the inflationary impact of higher global prices for oil and other commodities. If so, the Bank of Israel has some very early indications that it’s wish is being granted: The shekel appreciated on the back of the rate hike, with the official rate set at 3.525 to the dollar on Tuesday, close to its strongest level in 27 months.
The Israel Manufacturers Association, which represents the country’s biggest industrial companies, warned on Tuesday that if the shekel appreciates to 3.5 to the dollar, companies will lose some $2.9 billion in export sales, equal to about 6.6% of the country’s exports. They will even be hurt in the domestic market because the price of imports will fall.
The Bank of Israel itself assumes that every 10% appreciation in the exchange rate after inflation causes a 2% drop in exports, with a more adverse impact on profit margins.
Economists said the latest rate hike and the ones expected over the next months would certainly put a brake on economic growth but, with the economy in hyper drive, Fischer has room to maneuver without causing damage. Merchandise exports jumped at a near 30% annual rate in the December-February period, according to Israel’s Central Bureau of Statistics.
“The more significant impact is on both the mortgage rates for floating rates loans which will become more expensive,” Jonathan Katz, Jerusalem-based economist at HSBC Holdings, told The Media Line. “It will have a damping effect on housing demand as well as consumer demand because those who are making interest payments will see their disposable income decline.”
For the Bank of Israel anything that would help calm the local real estate market would be welcome. Home prices, which aren’t included in the official CPI but factor into household costs all the same, have shot up by 16.3% in the 12 month to February, even after the central bank took steps to discourage people from taking out mortgages.
In January alone, home price rose 0.9%, slowing only marginally from a 1.3% monthly pace in November and December. Jean-Michel Saliba, a Bank of America/Merrill Lynch economist who covers the Israeli economy, said Fischer would probably have to do more to address the problem of home prices.
“Average mortgage rates are increasing but are still close to historic lows. More macro-prudential tools may be needed along with measures on the supply side,” Saliba told The Media Line. “The export sector is likely to bear the pain of the shekel’s strength.”
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Somali PM: Negotiations with Puntland underway
Mogadishu, Somalia (AHN) – Somali Prime Minister Mohamed Abdullahi Mohamed has revealed that his government is engaged in talks with the semiautonomous Somali state of Puntland in a bid to resolve the discontinuation of relations between the two governments.
In an interview with state-run radio Saturday night, the prime minister said the transitional federal government is a reconciliation government and is giving first priority to the peace process and reconciliation among all sides in Somalia.
“We have established contacts with Puntland and I am very hopeful that the ongoing reconciliation will yield positive results—we are all optimistic and everything will end in smooth manner,” the prime minister replied when asked if there were talks with the Puntland state.
“We are drawing a new program for the regional autonomies and I hope that all what they are complaining will be solved on the table,” Mohamed said.
Early this year, Puntland announced that it had discontinued cooperative relations with the Somali government, accusing it of denying the region’s rights in the federal government.
Puntland President Dr. Abdirahman Mahmoud Faroole said this week that talks are welcomed, although the decision by his cabinet to cut relations with the TFG was still in place.
Puntland is the largest semiautonomous state in Somalia. Most of the current serving Somali police forces were trained at camps in the Puntland region.
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Cotton rally not finished yet despite sowing hopes
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NATO assumes military operations’ command in Libya
Tripoli, Libya (AHN) – In what could enable the defense alliance to hit at Muammar Gaddafi’s forces in case they threaten civilians, NATO on Sunday took over full control of U.S.-led Western military operations in Libya.
Following the hand-over, NATO Secretary General Anders Fogh Rasmussen said the alliance’s goal was to protect civilians and civilian-populated areas from Gaddafi’s attacks. “NATO will implement all aspects of the UN Resolution. Nothing more, nothing less,” he added. Rasmussen announced Canada’s Lieutenant-General Charles Bouchard as operational commander for Operation Unified Protector and ordered him to start executing the operation with immediate effect.
NATO officials warned that the transfer could take as long as 72 hours to complete, hence, NATO and coalition forces will jointly continue the operation for the next two to three days. The 28-member organization endorsed a three-month plan, which includes rules to strictly limit the use of ground strikes’ use.
An official, however, said that the takeover doesn’t mean NATO’s intervention in support of armed rebels against Gaddafi. Several naval operations are already undergoing in an attempt to stop Gaddafi forces from getting arms and mercenaries from overseas. The nations previously agreed to enforce a no-fly zone aimed at preventing Gaddafi’s jets from flying.
On Sunday, Libyan rebels received coalition forces’ support in gaining momentum as they hit Gaddafi’s hometown in Sirte. State television described the air raids on Tripoli and Sirte as an attack by “the colonial aggressor.”
Meanwhile, rebels said that oil production would resume as normal in the areas under their control despite the uprising. The rebel representative said that one of the territories under their control produces 100,000 and 130,000 barrels a day, adding they would soon start oil exports.
Speaking at a news conference, Ali Tarhoni, a rebel representative responsible for economy, finance and oil, said, “We are producing about 100,000 to 130,000 barrels a day, we can easily up that to about 300,000 a day.”
In London, British Defense Minister Liam Fox said the international coalition would not violate the U.N. arms embargo by supplying arms to rebel forces against Gaddafi’s regime in the Libyan military operation.
In a statement to BBC television after the NATO meeting in Brussels, Fox said that they were not planning to arm the rebels. His comments came in response to claims in Britain’s Sunday Times newspaper that Western forces were considering arming the rebels for an early victory over Gaddafi.
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U.S. stocks up for second straight day on surge of tech shares
New York, NY, United States (AHN) – U.S. stocks gained for the second straight day on Thursday as technology firms’ positive earnings reports beat concerns on crises in Japan and Libya.
The Dow Jones Industrial Average rose 85 points or 0.5 percent to 12,171 with Hewlett-Packard Co. as the top gainer.
The Standard & Poor’s 500 Index recovered lost ground since the earthquake and tsunami that struck Japan increasing 12 points or 0.9 percent to 1,310. Linux vendor Red Hat was the top gainer after reporting high earnings and raising its profit forecast. Other gainers were semiconductor maker Micron Technologies and chipmaker Nvidia.
The Nasdaq Composite Index climbed 38 points or 1.4 percent to 2,736.
Crude oil futures settled at $105.60 a barrel on the New York Mercantile Exchange. The oil for May delivery was 59 cents or 0.6 percent lower.
Gold futures for April delivery fell $3.10 or 0.2 percent to $1,440 an ounce.
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Wheat soars after US stokes talk of China corn buy
US farm officials announce a sizeable corn sale to an unknown importer – who many investors take to be China. Wheat jumps 5% in Paris
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