Developers and property lawyers in the kingdom are warning that delays to legislation making mortgages available to property buyers are undermining Saudi Arabia’s real estate market.

One Riyadh-based developer says the absence of a mortgage law means developers are having to provide financing packages to buyers, which in turn means they have fewer funds available for further developments.

The draft mortgage law, which has been in discussion for almost a decade, was approved by the kingdom’s 150-member Shura Council in July. It is now awaiting final ratification from the Council of Ministers, but there has been no indication from Riyadh as to when this will happen.

The call for the law to be passed comes as a raft of major real estate schemes are being launched or planned, to meet the needs of an expanding population.

“It [the mortgage law] is definitely necessary,” says Nasri Helow, Saudi Arabia managing director for the Land Company for Property Development & Investment. “We have the facility and power to support our clients.

“However, it would be much easier for them to get money from banks. While it might not always be a concern, it does mean that we would not have the money to start other projects.”

Another Saudi developer claims project sponsors are reluctant to enter a real estate market where mortgages are unavailable.

“The law is definitely needed,” says the Saudi developer. “Because there is no mortgage law, firms are being conservative in developing real estate projects. They [developers] are not sure if there is a market, so companies are shying away from such projects.”

Adding further weight to the warning from developers that delays in establishing a mortgage sector will damage the real estate market, Leroy Levy, head of the Saudi practice at UK law firm Trowers & Hamlins, says the law is crucial for the market.

“It will facilitate the real estate market opening up,” says Levy. “It is one thing saying to developers you can do a multi-billion-dollar real estate development, but if you know mortgages are not available to the open market for individuals, there is little incentive for someone to invest billions [of dollars] in real estate projects.”

Much of the legal framework to introduce mortgages to the kingdom is in place, says Levy, but key elements need final approval from the Council of Ministers.

“You can technically obtain a mortgage, but cannot take the final step to put it legally in place,” says Levy. “That requires the approval of the notary public, and approval has not been forthcoming. The law should have come into effect some time ago. It is difficult to understand why it has not and to predict when it will come into force. It has gone into a black hole.”

However, despite the continued absence of the mortgage law, some major developments are still being planned.

Within the next two months, the Land Company for Property Development & Investment will launch a SR9bn ($2.4bn) real estate project in Riyadh.

To be called Riyadh Ajmakan, the 1.7-square-kilometre site in the Al-Khozama district of the capital is currently being prepared, and landscaping is expected to begin in the coming weeks.

The company aims to attract investors at the Cityscape Dubai trade fair in October, says Helow.

Japan’s Nikken Sekkei has developed the masterplan and the local SaudConsult is the consultant on the project. The developer’s sister company, Al-Arrab Contracting Company, is carrying out a significant portion of the project’s construction.

Other firms will be invited to bid for the remaining elements of the construction project in the coming months.

Government-owned Raid Investment Company is also soon to launch a major real estate project in Jeddah. Raid is wholly owned by the government’s Public Pensions Agency. Its new residential development covers approximately 2 sq km and is currently in the design phase, with work continuing on the masterplan.

According to one source, the new project is in a prime location near Jeddah International airport and close to the Red Sea.

The projects add to a strong pipeline of large schemes planned in the kingdom. In July, Riyadh-based developer Dar al-Arkan said it would launch a multi-billion-dollar mixed-use development in Jeddah by the end of the year.

The project will cover about 15 sq km and will be one of the largest in the kingdom. It is expected to be officially launched in October when King Abdullah bin Abdulaziz al-Saud is due to lay the foundation stone (MEED 11:7:08).

UAE developer Limitless has also announced plans for a $11bn development called Al-Wasl, to be located north of Riyadh.

The 14-sq km project is designed for a population of up to 200,000, with 55,000 homes as well as offices, hotels and mosques (MEED 26:3:08).

In February, local developer Kingdom Holding approved plans to develop a 5.3-sq km site to the north of Jeddah.

The $13bn real estate project will have the proposed landmark Mile High tower as its centrepiece.