Saudi Arabia: Good Luck Trying to Get a Saudi to Make House Payments

The news that global investors remain interested in parking their money in Saudi Arabia should not be a surprise given that the Kingdom is one of the biggest and fastest growing economies in the Middle East with a stable political climate and a large untapped consumer market. During the past few decades, the Saudi government has expanded a number of opportunities for overseas investors and, therefore, it’s quite common to see a Saudi dressed in Prada, carrying a Gucci handbag, wearing Nikes, and driving his Audi. My personal belief is that it’s easy to keep citizens calm when you allow them to shop for anything and everything – witness President George W. Bush’s post-9/11 statement that Americans should continue shopping.

Now comes news that the Saudi government doesn’t believe its people have enough debt so Riyadh is planning to open a housing mortgage firm by 2013. Since housing is a big problem in Saudi Arabia, it makes sense that the government would want to encourage ways to make home-ownership more affordable. In shades of the housing mortgage crisis that continues to try and destroy the global economy, the Saudi government has said that it wants to raise mortgage debt levels from the current 5 percent of gross domestic product (GDP) – the US has a 75 percent mortgage debt to GDP rate – to an undetermined rate.

Any reasonable person would probably have issues with a government trying to raise the debt levels of its citizens but these concerns are likely not at the forefront of the Saudi government because it’s sitting on so much cash. Plus, oil prices are pretty high and so it doesn’t look like Riyadh will run out of money anytime soon. Investors, however, are a different matter; while the Saudi government will have a 15 percent stake in the new mortgage firm, overseas investors will be heavily exposed to the Saudi mortgage market.

To be sure, this market has a lot of potential but anyone who believes the prediction by the chief executive of the Saudi Arabian investment bank, Sidra Capital, “that the maturation of the credit-rating system in the kingdom would lead to a generally low default rate” needs to have their head examined. Saudi citizens are notorious for not paying their bills and dragging out the process before paying for anything. On a positive note, it’s likely the Saudi government will pick the tab for any delinquencies – after blaming the investors and throwing them in prison for tempting Saudi citizens with dreams of lavish housing. This, unfortunately, will hurt its resources and limit its ability to buy its people off the next time something like the Arab Spring pops up.