House prices need to fall to jump start the $66bn GCC mortgage industry
GCC house prices will have to fall even further if the local mortgage industry is to begin to finance the real estate sector properly, said the key speaker at the inaugural GCC Mortgage Summit 2010. The first day of the summit was attended by over 120 delegates in Bahrain today.
The keynote address was delivered by Central Bank of Bahrain Executive Director of Banking Supervision, Khalid Hamad. He said: ‘Current prices are not affordable or realistic, and further falls are necessary and then economic fundamentals will start rebuilding market confidence.
‘The fundamentals of the region are good, underpinned by growing global demand for oil. But since 2005 real estate prices have become inflated and bubbles have formed.
‘Particularly in commercial real estate demand is weak and prices are unrealistically high. And for residential property the demand is in the low and middle income segment while the supply is in the luxury market’.
Ernst & Young’s Head of the Islamic Financial Services Group, Sameer Abdi pointed out that 80 per cent of Bahrain nationals earn less than BD1,200 per month, and with local mortgages at 9.25 per cent there is no way for this group to pay a large mortgage.
He said mortgage rates would need to fall to around three per cent for Bahraini nationals to afford to buy a villa, or house prices would have to come down.
This challenge to mortgage providers was taken up by the CEO of Sakana, co-organizers of the new annual event, R. Lakshmanan who noted the large role of expatriates in some GCC property markets, particularly the UAE.
But he focused on the creation of a $66 billion mortgage market in the region since the first freehold sales in Dubai in 2001.
‘This industry is still in its infancy and a baby, and for the past two years has been coping with the impact of the global financial crisis and 25 to 50 per cent house price falls.’
From Saudi Arabia, Khalid Ali Aboodi, CEO and General Manager of the Islamic Corporation for the Development of the Private Sector explained how the kingdom is looking to home ownership as a means of both developing economic activity and the greater social responsibility that comes with it.
However, the development of the Saudi mortgage sector is currently hampered by the slow passage of the key mortgage law which Al Aboodi hoped would come ‘very soon’.
The GGC Mortgage Summit 2010 will run for two days (June 2-3 2010) in Bahrain. The forum is pegged to attract more than 100 firms and trade professionals from across GCC including real estate developers, mortgage providers, real estate service providers and other organisations that provide support such as insurance companies, legal and research..
The summit sponsors include DAMAC, Oracle, Ernst & Young, Ithmaar Bank, Manara Developments, 3i Infotech, Cluttons, KPMG, Solidarity, Abax Corporate Services, and TNS. The media sponsors include Oxford Business Group, Bahrain Tribune, Alayam, Redin, Bahrain this month and Gulf Insider.