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Saudi Arabia: Council of Ministers Approves Several Laws Regulating Real Estate Mortgage System

(July 12, 2012) On July 2, 2012, the Council of Ministers of the Kingdom of Saudi Arabia approved five laws organizing the lending process, loan purchase and sale transactions, mortgage registration, and foreclosure for real estate. The executive regulations for these laws will be issued 90 days from the publication of the laws in the official gazette. Mortgages will be based on the Islamic lease model known as al Ajarah.

The new legislation is designed to create a legal mechanism to fund the housing sector in the Kingdom. The laws are supposed to preserve the rights of creditors as well as debtors, in accordance with Islamic regulations on commercial transactions.

According to news reports and investor statements, many economic sectors will witness considerable improvement due to the passage of the new mortgage legislation. For instance, it is anticipated that the banking sector will earn unprecedented revenues from the increase in lending transactions, and that insurance companies will gain profits from private mortgage insurance policies. Economic analysts also expect that construction companies will have higher earnings because of the increased need for construction services due to incentives offered by these laws. (Saudi Arabia Approves a Real Estate Mortgage System [in Arabic], Al Arabiya (July 2, 2012).)