## _wp09288 - 1.      Sources of House Price Data in EMCD

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---

### I. Introduction — scope, channels, and research questions
- Recent boom and subsequent sharp correction in house prices in many advanced countries; similar boom-bust behaviour observed in the Middle East, North Africa, and Central Asia region (MCD).
- Two important channels through which the housing cycle affects the economy:
  - (i) A more developed housing finance market helps households better smooth consumption.
  - (ii) Positive feedback from house prices to household consumption could threaten economic stability.
- Objectives for the emerging MCD (EMCD) region:
  - Document development in housing finance markets and their links to the macroeconomy.
  - Characterize the housing price cycle—including determinants and recent correction.
  - Examine segregation between the housing and rental market in EMCD.
- Research questions:
  - Has EMCD experienced a liberalization of housing finance?
  - Do cross-country differences in housing relate to institutional characteristics of national mortgage markets?
  - How do housing and housing finance impact consumption?
  - Has EMCD experienced a housing and rental boom-bust cycle in the past two decades?
  - What are the implications for the macroeconomy—does housing amplify or dampen the business cycle, and what is the scope for stabilization?
  - Do house prices reflect a bubble?
  - What are the fundamental determinants of rental price dynamics, and how different are these fundamentals from those in advanced and other emerging market economies (EME)?

### II. Housing market composition — key observations and ownership shares
- Regional composition:
  - EMCD comprises 16 economies: Algeria, Bahrain, Egypt, Iran, Jordan, Kazakhstan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Tunisia, Saudi Arabia, Syria, United Arab Emirates (data not available for all 16).
- Home-ownership comparative finding:
  - OECD average (WEO 2008a): about 65 percent lived in self-owned houses between 1995 and 2007.
  - EMCD overall average home-ownership share reported as 64 percent.
  - In EMCD this percentage varies from 38 percent in Egypt to about or over 80 percent in Syria and Tunisia; nine out of 11 countries in Table 1 have a share larger than 50 percent.
- Home-ownership shares (Table 1):
  - Algeria: 0.45
  - Bahrain: 0.68
  - Egypt: 0.38
  - Jordan: 0.71
  - Kuwait: 0.68
  - Morocco: 0.65
  - Qatar: 0.72
  - Saudi Arabia: 0.56
  - Syria: 0.85
  - Tunisia: 0.77
  - UAE: 0.55
- Rental & leasehold shares:
  - Algeria: 0.30
  - Bahrain: 0.20
  - Egypt: 0.33
  - Jordan: 0.17
  - Kuwait: 0.27
  - Morocco: 0.22
  - Qatar: 0.28
  - Saudi Arabia: 0.44 (sum of rental 23 percent and leasehold 21 percent)
  - Syria: 0.07
  - Tunisia: 0.08
  - UAE: 0.45
- Informal and Social (Subsidized) Housing shares:
  - Algeria: 0.25
  - Bahrain: 0.12
  - Egypt: 0.29
  - Jordan: 0.12
  - Kuwait: 0.05
  - Morocco: 0.15
  - Qatar: 0.00
  - Saudi Arabia: 0.00
  - Syria: 0.08
  - Tunisia: 0.15
  - UAE: 0.05
- Aggregate statement:
  - UAE is an outlier with a rental market share as high as 45 percent due to a large share of expatriate workers.

### Supply gaps, land market problems, affordability, and house-price-to-income
- Key findings:
  - Shortage in housing stock, particularly affordable low- and middle-income housing, despite high homeownership ratios.
  - Supply rigidities partly attributed to land supply constraints appearing across countries with supply gaps.
  - Down payments for homeownership have ranged between 20–100 percent, limiting access for 21–35 year-olds and low-income households.
  - State majority ownership of land in Algeria, Egypt, Iran, and Morocco; in Egypt and Morocco only 25 percent of land is titled.
- Country-specific supply-gap characterization:
  - Chronic supply shortages across all income groups: Algeria, Egypt, Iran, Yemen.
  - Significant supply gaps primarily for low- to middle-income households: Kuwait, Lebanon, Morocco, Qatar, Saudi Arabia, Syria.
  - Excess supply in luxury and leasehold market segments: Bahrain and the UAE; excess in Morocco’s luxury tourism segment.
  - Adequate supply: Jordan and Tunisia.
  - Future supply challenges acute in Morocco (non-luxury segment) and Saudi Arabia; policies appear in train for Saudi Arabia to meet demand.
- House-price-to-income ratio:
  - Where supply gaps exist, the house-price-to-income ratio is generally larger; house-price-to-income ratio is high in Bahrain and the UAE despite absence of a supply gap.

### Rental market dynamics and segmentation
- Historical evolution:
  - Rental demand took off in the late 1990s driven by rising incomes (including remittances) in net oil importer economies (NOI) and growth in expatriate workers in net oil exporter economies (NOE).
  - Prior to the late 1990s the rental market was static and suffered from administered pricing in several EMCD economies (e.g., Egypt and Tunisia).
- Segmentation and demand drivers:
  - Since 2002 market value dominated by luxury and middle- to high-income segments tailored to high-income expatriates, seasonal tourists, national professionals, and the wealthy.
  - High-income expatriates and seasonal tourists generate the majority of demand in luxury and high-end rental segments.
  - Low-income renters are primarily blue-collar expatriate workers from the Asian subcontinent in the GCC.
- Rental market metrics:
  - Rental yields: average of 6 percent in the GCC and a high of 20 percent in the UAE.
  - Rental-price-to-income ratios particularly high in luxury and high-end segments.
- Timing and interactions with house prices:
  - For Oman, both real house and rental prices appreciated after 1/2006.
  - For Kuwait and the UAE, strong depreciation in house prices in 2008 and 2009 coincided with real rental prices going up.

### Social housing and policy effects
- Social housing shares:
  - About 30 percent in Egypt (rising to 65–90 percent in certain cities) to only 5 percent in some GCC economies.
- Policy assessment:
  - Social housing policies can be enabling or regressive in EMCD.
  - During the 1990s and early 2000s, state subsidies were highly regressive in Algeria, Egypt, and Morocco.
  - Well-targeted policies and legal enshrinement of the right to decent housing (e.g., Bahrain and Saudi Arabia) have enabled more affordable housing in some countries.
  - Public-private partnerships established in most EMCD to supply affordable social housing, often complemented by softer housing finance terms (interest rate subsidies and loan guarantees).
  - Notable exceptions needing better targeted support: Lebanon and Yemen.
- Literature note:
  - Social housing is found to dampen house price volatility.

### Mortgage market innovations, stages of development, and products
- Three development stages over past two decades:
  1. Early to mid-1990s: primary mortgage markets very small; financing limited to bequests, savings, remittances; private banks conservative; large upfront payments; highly regulated, chronic underfunding.
  2. Late 1990s and early 2000s: deregulation began; more entrants and products; access broadened but still limited to high- and middle-income households; infrastructure deficits and tight regulation persisted.
  3. Post-2003: entry of nonbank financial and specialized institutions offering Islamic and non-Islamic mortgage instruments; extension of mortgage terms up to 30 years in some countries; higher LTV ratios and lower mortgage rates across most EMCDs.
- Islamic (shari’a-compliant) housing finance products identified:
  - Ijara, Musharaka mutanaqisa, Murabaha, Furijat, Yusur.
- Examples of interest rate changes:
  - Egypt: effective interest rate reached over 20 percent a few years ago, falling to about 12 percent in 2007/08; rate applied to low-income households capped at about 6 percent (or 2-4 percent above the central bank rate).
  - Jordan: rate about 9-10 percent, down from 14-15 percent a few years earlier.

### Mortgage Market Index (MMI), securitization, and institutional differences
- MMI construction:
  - Simple average of six indicators; first five comparable to WEO (2008a); sixth captures underwriting and regulatory capacity (mortgage loan approval and underwriting requirements, typical mortgage LTVs, credit risk capacity, clarity of mortgage law).
  - Index range: 0 to 1; higher values indicate easier household access to mortgage credit.
- Selected country MMI values and observations:
  - Morocco: 1.00 — most advanced mortgage market in the region.
  - Kuwait: 0.95 — among most developed; wide range of products; fixed interest rate products; penalty-free refinancing and tax benefits.
  - UAE: 0.91 — highly developed mortgage market, significant nonbank role.
  - Saudi Arabia: 0.84 — second tier, dominance of shari’a-compliant instruments.
  - Bahrain: 0.80 — second tier.
  - Tunisia: 0.73
  - Algeria: 0.52
  - Egypt: 0.51 — conservative lending, high effective interest rates historically, regressive subsidies, weak property rights.
  - Jordan: 0.59
  - Qatar: 0.43 — lower MMI due to limited range of lenders and loan features but advanced institutional infrastructure.
  - Algeria, Iran, Lebanon, Syria, Tunisia, Yemen: many entries incomplete or lower values.
- Relationship to mortgage debt:
  - Correlation between MMI and residential mortgage-to-GDP ratios: 0.55; t-statistic: 1.75.
- Securitization developments:
  - Two forms emerging: MBS converted to bonds sold to institutional investors (off-balance-sheet) and covered bond issuance (on-balance-sheet).
  - Examples mentioned: Algerian Mortgage Refinance Company (2007); Egyptian mortgage refinance company developing secondary market MBS; Jordanian Mortgage Refinance Company backing loans with maximum LTV 80 percent (since 1997); Moroccan SPV expanding to RMBS, CMBS, ABCP; Saudi Arabia’s Dar Al-Arkan issuing Islamic MBS in 2008; Tunisia first MBSs in 2006; UAE first EMCD country to issue MBS.

### Drivers of mortgage market development
- Exogenous macro factors:
  - Abundant global liquidity and pegged U.S. dollar exchange rate regimes implying looser monetary policy stance.
  - Soaring oil prices and abundant oil wealth of institutional investors fueling product development and capital market funding (securitization).
  - Change in role of the state and sovereign wealth funds as specialized lenders and portfolio diversifiers.
  - Reforms to relax supply constraints (weak land titling, property rights, regressive social housing policies).
  - Institutional actors in securitization and housing finance: Arab Fund for Social Development and the Arab Monetary Fund.

### Housing and rental price dynamics, data limitations, and nominal vs. real patterns
- Data coverage limitations:
  - Most EMCD countries lack house price indices; descriptive analysis limited to Kazakhstan, Kuwait, Oman, UAE.
- Observed dynamics:
  - Strong downward price correction from 2007 onwards in analyzed countries, appearing to have bottomed out.
  - Figure 2 shows corrections after 2007, especially pronounced in the UAE.
  - In Q1-Q2 2009 UAE house price index continued to show aftermath of that correction.
- Nominal vs. real dynamics:
  - Nominal CPI rents experienced strong appreciation in almost all countries in the past two decades; real CPI rents much more stable.
  - Real house price dynamics exhibit similar patterns to nominal house price dynamics; nominal and real rental dynamics differ substantially.
  - House price fluctuations are much stronger than rental price dynamics, implying house prices are more pro-cyclical and may amplify the business cycle.
- Granger causality (nominal series) between CPI rents and overall CPI:
  - CPI rents Granger cause CPI in six out of ten EMCD economies: Egypt, Jordan, Kuwait, Oman, Pakistan, Saudi Arabia.
  - Overall CPI Granger causes CPI rents in four economies: Kuwait, Morocco, Oman, Tunisia.
  - For the UAE and Kazakhstan, overall CPI and CPI rents do not Granger cause each other.
- Co-integration tests (quarterly data):
  - Co-integration between CPI rents and overall CPI not rejected in four countries: Egypt, Kuwait, Morocco, Oman.
  - Interpretation: in six out of ten EMCD economies (Jordan, Kazakhstan, Pakistan, Saudi Arabia, Tunisia, UAE) nominal CPI rents dynamics are not driven by overall CPI index, suggesting rental dynamics may be driven by positive demand shocks in the rental market.

### Timing and magnitude of housing busts (Box 2)
- Bubble proxies used: real house prices and house-price-rental ratios (Poterba, 1991).
- Coverage for bubble proxies: Kazakhstan, Kuwait, Oman, UAE.
- Timing:
  - Earliest correction in house price-rental ratio: Oman in May 2007.
  - Correction in Kuwait and the UAE occurred during Q4 2008.
  - UAE and Oman appear to have bottomed out in house prices during Q1-Q2 2009.
- Magnitude:
  - Kuwait and Oman experienced milder corrections than Kazakhstan and the UAE.
  - Kazakhstan and the UAE: house price-rental ratio decreased 50 percent within a 7 month period.
- Interpretation:
  - Differences reflect varying extents/timings of housing bubbles and segmentation between rental and owner-occupied markets.
  - In Kazakhstan and Oman substitution between ownership and rental existed, leading to sharp corrections when price-rental ratios peaked.
  - In Kuwait and the UAE segmented markets (nationals as owners, expatriates as renters) limited substitution and delayed/broadened corrections—consistent with a pure bust from overvaluation rather than adjustment via substitution.
- Policy implication:
  - Where housing and rentals are not substitute goods, stabilization policies aimed at dampening housing’s amplification of the business cycle could be futile.

### Housing and the macroeconomy — descriptive evidence and consumption links
- Literature synthesis:
  - Two main channels: consumption smoothing and residential investment.
  - More developed mortgage markets allow consumption smoothing but can increase housing demand and fuel booms, potentially increasing macroeconomic instability.
  - Residential investment is a leading indicator of recessions; in OECD countries residential investment usually leads the business cycle by one to two quarters.
- Descriptive EMCD evidence:
  - Limited house price data restricts full econometric assessment; descriptive links built for available series.
  - Kuwait example: prior to 2005 per capita consumption and house prices co-moved; after 2005 they moved in opposite directions—suggesting stronger substitution between private consumption and housing post-2005.

### Mortgage market development and consumption volatility
- MMI correlations with private consumption volatility:
  - 1989-99 average panel: correlation = -0.28; t-statistic = -0.76.
  - 2000-08 average panel: correlation = -0.47; t-statistic = 2.43.
- Interpretation:
  - Greater mortgage market development associated with lower detrended per capita private consumer spending volatility in 2000-08 relative to 1989-99.
  - Kuwait and Qatar are outliers, suggesting other explanations (including wealth effects) may drive patterns.

### Segregation between housing and rentals and determinants of rental dynamics
- Segregation evidence:
  - Segregation between owner-occupied housing and rental markets in EMCD, particularly in NOE with large expatriate shares.
  - Shortage in housing supply and high expatriate worker shares likely contribute to limited substitution between ownership and renting, increasing price volatility and bubble risk.
- Rental fundamentals preview:
  - CPI rents data relatively more available.
  - Panel data analysis (Section VI) estimates long-term determinants of real rental price growth.
  - Preliminary conclusion: rental markets in EMCD appear driven by expatriate worker demand (proxied by remittances) and expatriate population size in addition to aggregate price level.

### Empirical strategy and key regression results (panel analysis of real rental price growth)
- Data:
  - Annual data 1989-2008 from Bloomberg, Haver Analytics, IFS, World Development Indicators.
  - Sample: 33 EME, including ten EMCD economies (list provided in source).
- Model:
  - Cross-country panel regression with fixed effects on growth rate of real rental price (△ln of real rent).
  - Regressors: △ln y_it (real per capita GDP growth), ln(1+R_it) (real long-term lending rate), △ln Wpop_it (working population growth), △ln Credit_it (real credit growth); remittances included in some specifications.
- Selected coefficients and inferences (Table 3 and discussion):
  - For EMCD (columns for emerging MCD economies only): significant positive coefficients on working-age population and credit growth.
  - For full EME sample: interest rate channel significant in some specifications.
  - Specific coefficient examples (preserve values exactly as presented):
    - △ln Wpop_it: 0.567** (0.19) ; 0.455** (0.18) ; 0.401** (0.17) ; 0.445*** (0.15)
    - ln(1+R_it): -0.402*** (0.13) ; 0.636*** (0.043) ; -0.199 (0.15) ; 0.617*** (0.046) ; -0.760*** (0.17)
    - △ln Credit_it: 0.129** (0.053) ; 0.0234 (0.017) ; 0.0914* (0.049)
    - △ln Remittance_it: 0.0668* (0.036)
  - R^2 examples: 0.3342 ; 0.1225 ; 0.4317 ; 0.4950 ; 0.4858 ; 0.4984 ; 0.7632
  - Sample sizes (N) as presented: 683, 206, 832, 068, 320, 43 (values preserved as in source).
- Interaction and robustness (Table 4):
  - Interaction terms: ln(1+R_it) × MCD and △ln Wpop_it × MCD.
  - Oil price and Oil price × Oil Exports included.
  - Selected coefficients (values preserved):
    - △ln Wpop_it × MCD: 2.615*** (0.91)
    - ln(1+R_it) × MCD: -1.005*** (0.32)
    - Oil price: 0.0737*** (0.026)
    - Oil price × Oil Exports: -0.123*** (0.041)
  - Interpretation:
    - Working-age population growth (including expatriates) significantly more positive in EMCD.
    - Interest rate significantly more negative in EMCD.
    - Oil price increases associated with milder real rental price growth in NOE, possibly via switching into housing.
    - Steel price insignificant.

### Conclusions and policy implications
- Empirical conclusions:
  - (a) EMCD experienced a housing and rental boom-bust cycle over the past two decades.
  - (b) Accompanied by liberalization of housing finance.
  - (c) Cross-country differences in housing relate to institutional characteristics of national mortgage markets.
  - (d) Home ownership is more sensitive to the business cycle and general economic conditions, potentially amplifying pro-cyclicality.
  - (e) Mortgage market innovations are correlated with lower per capita consumption volatility this decade.
  - (f) House prices reflect bubble dynamics despite cross-country differences in timing of busts.
  - (g) House prices are decoupled from recent adverse global financial conditions due to segmentation.
  - (h) Fundamental determinants of rental price dynamics differ from advanced economies: youthful working-age population (including expatriates) and regional wealth effects (remittances and credit growth) matter more than the interest rate channel.
- Main policy implications:
  - (i) Improve data availability—historical, current and future coverage and frequency of house price indices, bank and non-bank mortgage credit to residents and corporates, and other disaggregated macro variables (consumption, investment)—to better monitor house price asset developments and macroeconomic implications.
  - (ii) Monitor and understand consequences of relaxing household budget constraints through mortgage market innovation for aggregated demand via consumption and investment, including lead-lag relationships with the business cycle and adequacy of prudential regulation of the mortgage market to avoid excessive buildup of vulnerabilities.
  - (iii) Further analyze amplification of the business cycle due to house price fluctuations to assist policymakers in designing appropriate stabilization policies.

### Appendix Box A.2 — Common Islamic (shari’a-compliant) Mortgage Instruments
- Ijara (akin to a lease):
  - Financer purchases an asset and leases it to a client for a specified rent and term; owner bears "risks and rewards" and sells asset to client upon payment of last installment.
- Musharaka mutanaqisa (akin to a declining-balance mortgage):
  - Equity participation contract; financier and client contribute jointly (example financier 80% and client 20%); title deed held in name of financier and transferred upon final payment.
- Murabaha (akin to cost-plus financing):
  - Typical maximum term of 18-20 yrs; typical down payment: 30%; includes insurance; key underwriting criteria include debt-service-to-income ratio of <33%, payment of house appraisal fees and other documents.
- Furijat:
  - Short-duration mortgage (6 yrs); (5.5)% murabaha profit mark-up adjustable over duration; refinancing possible after 25% paid up.
- Yusur:
  - First adjustable repayment mortgage; enables borrower to pay lower monthly installments for up to three years.
- Key underwriting and feature highlights:
  - Ownership structures: financier-held title until last installment (Ijara, Musharaka mutanaqisa).
  - Typical financing share example: financier (80%), client (20%).
  - Murabaha terms: maximum term 18-20 yrs; down payment 30%; debt-service-to-income ratio <33%.
  - Furijat: 6 yrs; (5.5)% profit mark-up; refinancing after 25% paid up.
  - Yusur: payment flexibility for up to three years.
- Sources for Appendix: Saudi Home Loans (2007) and Merrill Lynch (2007).

*Italic: Source: _wp09288 - 1.      Sources of House Price Data in EMCD (IMF PDF chapter).*

### 1.      Sources of House Price Data in EMCD......................................................11

### _wp09288 - 1.      Sources of House Price Data in EMCD

### I. Introduction — scope, channels, and research questions
- Recent boom and subsequent sharp correction in house prices in many advanced countries has focused attention on links between housing and business cycles; similar boom-bust behaviour is observed in the Middle East, North Africa, and Central Asia region (MCD).
- Two important channels through which the housing cycle affects the economy:
  - (i) A more developed housing finance market helps households better smooth consumption.
  - (ii) Positive feedback from house prices to household consumption could threaten economic stability.
- Objectives of the paper for the emerging MCD (EMCD) region:
  - Document development in housing finance markets and their links to the macroeconomy.
  - Characterize the housing price cycle—including determinants and recent correction.
  - Examine segregation between the housing and rental market in EMCD.
- Research questions addressed:
  - Has EMCD experienced a liberalization of housing finance?
  - Do cross-country differences in housing relate to institutional characteristics of national mortgage markets in the region?
  - How do housing and housing finance impact consumption?
  - Has EMCD experienced a housing and rental boom-bust cycle in the past two decades?
  - What are the implications for the macroeconomy—does housing amplify or dampen the business cycle, and what is the scope for stabilization?
  - Do house prices reflect a bubble?
  - What are the fundamental determinants of rental price dynamics, and how different are these fundamentals from those in advanced and other emerging market economies (EME)?

### Organization of the paper (structure)
- Section II: Characteristics of the housing market in EMCD, including supply rigidities and demand features.
- Section III: Documents mortgage market innovations and develops a mortgage market index (MMI).
- Section IV: Presents housing and rental price developments.
- Section V: Links housing and rental developments to consumption volatility and the MMI.
- Section VI: Estimates fundamental determinants of rental price dynamics using panel data analysis covering 33 EMEs and exploiting cross-country differences (heterogeneity).
- Section VII: Conclusions.

### EMCD composition and data availability
- The EMCD region comprises the following 16 economies: Algeria, Bahrain, Egypt, Iran, Jordan, Kazakhstan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Tunisia, Saudi Arabia, Syria, and the United Arab Emirates.
- However, data are not available for all 16.

### II. Housing market composition — key observation
- Table 1 splits the market into three categories: homeownership (housing hereafter), and rental and social housing.
- Key comparative finding reported:
  - It is perhaps remarkable to observe a similar average homeownership ratio in this region compared to advanced countries.
  - According to WEO (2008a), about 65 percent of the population, on average, lived in self-owned houses in OECD countries between 1995 and [text ends].

*Source: _wp09288 - 1.      Sources of House Price Data in EMCD (IMF PDF chapter).*

### 2007. In EMCD, this percentage varies from 38 percent in Egypt to about or over 80

### _wp09288 - 2007. In EMCD, this percentage varies from 38 percent in Egypt to about or over 80 percent in Syria and Tunisia, with nine out of 11 countries in Table 1 having a share larger than 50 percent and an overall average of 64 percent.

### Housing market structure and ownership shares
- Home-ownership shares (from Table 1):
  - Algeria: 0.45
  - Bahrain: 0.68
  - Egypt: 0.38
  - Jordan: 0.71
  - Kuwait: 0.68
  - Morocco: 0.65
  - Qatar: 0.72
  - Saudi Arabia: 0.56
  - Syria: 0.85
  - Tunisia: 0.77
  - UAE: 0.55
- Rental & leasehold shares (from Table 1):
  - Algeria: 0.30
  - Bahrain: 0.20
  - Egypt: 0.33
  - Jordan: 0.17
  - Kuwait: 0.27
  - Morocco: 0.22
  - Qatar: 0.28
  - Saudi Arabia: 0.44 (note: sum of rental 23 percent and leasehold 21 percent)
  - Syria: 0.07
  - Tunisia: 0.08
  - UAE: 0.45
- Informal and Social (Subsidized) Housing shares (from Table 1):
  - Algeria: 0.25
  - Bahrain: 0.12
  - Egypt: 0.29
  - Jordan: 0.12
  - Kuwait: 0.05
  - Morocco: 0.15
  - Qatar: 0.00 (table dots indicate negligible or unreported)
  - Saudi Arabia: 0.00 (table dots indicate negligible or unreported)
  - Syria: 0.08
  - Tunisia: 0.15
  - UAE: 0.05
- Aggregate statements:
  - Nine out of 11 countries in Table 1 have a home-ownership share larger than 50 percent.
  - Overall average home-ownership share reported as 64 percent.
  - UAE is an outlier with a rental market share as high as 45 percent due to a large share of expatriate workers.

### Supply gaps, land market problems, and affordability
- Key findings:
  - Despite high homeownership ratios, there is a shortage in housing stock, particularly affordable low- and middle-income housing.
  - Supply rigidities are partly attributed to land supply constraints, which appear in all countries with supply gaps.
  - Down payments for homeownership have ranged between 20–100 percent, limiting access for younger generations (21–35 year-olds) and low-income households.
  - State majority ownership of land in Algeria, Egypt, Iran, and Morocco; in Egypt and Morocco only 25 percent of land is titled.
- Country-specific supply-gap characterization (from text):
  - Chronic supply shortages across all income groups: Algeria, Egypt, Iran, Yemen.
  - Significant supply gaps primarily for low- to middle-income households: Kuwait, Lebanon, Morocco, Qatar, Saudi Arabia, Syria.
  - Excess supply in luxury and leasehold market segments: Bahrain and the UAE; excess in Morocco’s luxury tourism segment.
  - Adequate supply: Jordan and Tunisia.
  - Future supply challenges acute in Morocco (non-luxury segment) and Saudi Arabia; policies appear in train for Saudi Arabia to meet demand.
- House-price-to-income ratio:
  - Where supply gaps exist, the house-price-to-income ratio is generally larger than in those without.
  - The house-price-to-income ratio is high in both Bahrain and the UAE despite the absence of a supply gap.

### Rental market dynamics and segmentation
- Historical evolution:
  - Rental demand took off in the late 1990s driven by rising incomes (including remittances) in net oil importer economies (NOI) and growth in expatriate workers in net oil exporter economies (NOE).
  - Prior to the late 1990s the rental market was static and suffered from administered pricing in several EMCD economies (e.g., Egypt and Tunisia).
- Market segmentation and demand drivers:
  - Since 2002 market value dominated by luxury and middle- to high-income segments tailored to high-income expatriates, seasonal tourists, national professionals, and the wealthy.
  - High-income expatriates (often in financial and oil industries of the GCC) and seasonal tourists generate the majority of demand in luxury and high-end rental segments.
  - Low-income renters are primarily blue-collar expatriate workers from the Asian subcontinent in the GCC.
- Rental market metrics:
  - Rental yields vary widely across EMCD: average of 6 percent in the GCC and a high of 20 percent in the UAE.
  - Rental-price-to-income ratios are particularly high in the luxury and high-end segments.

### Social housing and policy effects
- Social housing shares and distribution:
  - Social housing ranges from about 30 percent in Egypt (rising to 65–90 percent in certain cities) to only 5 percent in some GCC economies.
- Policy assessment:
  - Social housing policies can be enabling or regressive in EMCD.
  - During the 1990s and early 2000s, state subsidies were highly regressive in Algeria, Egypt, and Morocco.
  - Well-targeted policies and legal enshrinement of the right to decent housing (e.g., Bahrain and Saudi Arabia) have enabled more affordable housing in some countries.
  - Public-private partnerships have been set up in most EMCD to supply affordable social housing to mid-to-low income households, often complemented by softer housing finance terms (interest rate subsidies and loan guarantees).
  - Notable exceptions needing better targeted support: Lebanon and Yemen.
- Additional finding:
  - Literature notes social housing is found to dampen house price volatility.

### Mortgage market innovations, stages of development, and products
- Three distinct development stages over past two decades:
  1. Early to mid-1990s: primary mortgage markets very small; financing limited to bequests, savings, remittances; private banks conservative; large upfront payments; highly regulated, chronic underfunding.
  2. Late 1990s and early 2000s: deregulation began; more entrants and products; access broadened but still limited to high- and middle-income households; infrastructure deficits and tight regulation persisted.
  3. Post-2003: profound change—entry of nonbank financial and specialized institutions offering Islamic and non-Islamic mortgage instruments; extension of mortgage terms up to 30 years in some countries; higher LTV ratios and lower mortgage rates across most EMCDs.
- Islamic (shari’a-compliant) housing finance products identified:
  - Ijara, Musharaka mutanaqisa, Murabaha, Furijat, Yusur.
- Examples of changes in interest rates (textual values preserved):
  - Egypt: effective interest rate reached over 20 percent a few years ago, falling to about 12 percent in 2007/08—with the rate applied to low-income households capped at about 6 percent (or 2-4 percent above the central bank rate).
  - Jordan: the rate was about 9-10 percent, down from 14-15 percent a few years earlier.

### Mortgage Market Index (MMI) and cross-country institutional differences
- Construction:
  - Synthetic index is a simple average of six indicators; first five comparable to WEO (2008a), sixth is a composite capturing underwriting and regulatory capacity (mortgage loan approval and underwriting requirements, typical mortgage LTVs, credit risk capacity, clarity of mortgage law).
  - Index lies between 0 and 1; higher values indicate easier household access to mortgage credit.
- Selected country values and institutional observations (from Table 2 and text):
  - Kuwait: MMI 0.95 — among most developed mortgage markets; wide range of primary mortgage products; fixed interest rate products; penalty-free refinancing and tax benefits.
  - Morocco: MMI 1.00 — most advanced mortgage market in the region.
  - UAE: MMI 0.91 — highly developed mortgage market, significant nonbank role.
  - Bahrain: MMI 0.80 — second tier.
  - Saudi Arabia: MMI 0.84 — second tier, dominance of shari’a-compliant instruments.
  - Egypt: MMI 0.51 — conservative lending, high effective interest rates historically, regressive subsidies, weak property rights.
  - Jordan: MMI 0.59
  - Qatar: MMI 0.43 — lower MMI due to limited range of mortgage lenders and loan features but advanced institutional housing finance infrastructure.
  - Algeria, Iran, Lebanon, Syria, Tunisia, Yemen: many table entries incomplete or lower index values; specific MMI table entries shown for Algeria (0.52), Jordan (0.59), Morocco (1.00), Tunisia (0.73), Saudi Arabia (0.84), UAE (0.91), Kuwait (0.95), Bahrain (0.80), Egypt (0.51), Qatar (0.43).
- Relationship to mortgage debt:
  - Higher MMI associated with larger residential mortgage-to-GDP ratios (correlation reported: 0.55; t-statistic: 1.75).
  - Countries with faster and deeper mortgage market innovations (Kuwait, Morocco, UAE) tend to have a higher stock of mortgage debt as a ratio of GDP.
- Securitization developments:
  - Two forms of securitization emerging: MBS converted to bonds sold to institutional investors (off-balance-sheet) and covered bond issuance (on-balance-sheet).
  - Examples: Algerian Mortgage Refinance Company (2007) financing unsecured debt securities; Egyptian mortgage refinance company developing secondary market MBS; Jordanian Mortgage Refinance Company backing residential mortgage loans with a maximum LTV ratio of 80 percent (since 1997); Moroccan SPV expanding to include RMBS, CMBS, ABCP; Saudi Arabia’s Dar Al-Arkan issuing Islamic MBS in 2008; Tunisia first MBSs in 2006; UAE was first EMCD country to issue MBS.

### Drivers of mortgage market development
- Exogenous macro factors cited:
  - Abundant global liquidity and pegged U.S. dollar exchange rate regimes implying looser monetary policy stance.
  - Soaring oil prices and abundant oil wealth of institutional investors fueling product development and capital market funding (securitization).
  - Change in role of the state and sovereign wealth funds as specialized lenders and portfolio diversifiers.
  - Reforms enacted to relax supply constraints (weak land titling, property rights, regressive social housing policies).
  - Institutional actors in securitization and housing finance: Arab Fund for Social Development and the Arab Monetary Fund.

### Housing and rental price dynamics
- Data limitations:
  - Most EMCD countries do not have house price indices; descriptive analysis limited to Kazakhstan, Kuwait, Oman, and the UAE.
- Observed dynamics:
  - Evidence of a strong downward price correction from 2007 onwards in the analyzed countries, which appears to have bottomed out.
  - Figure 2 (Box 1 countries) shows corrections after 2007, especially pronounced in the UAE.
  - In the first two quarters of 2009, the house price index in the UAE continued to show the aftermath of that correction.

_Italic: Source: Authors’ calculations and cited data in the PDF chapter._

### Appendix Table A.1 lists the definition of these house prices. For Oman, CPI rents could be the imputed

### _wp09288 - Appendix Table A.1 lists the definition of these house prices. For Oman, CPI rents could be the imputed

### Data sources and coverage (Box 1: Sources of House Price Data in Emerging MCD Economies)
- Real estate data coverage is limited and fragmented across EMCD economies.
- Private/paid indices and providers consulted:
  - The Mazaya Index (Al Mazaya Holding Company), developed in 2005; historical data available for a fee; not used in this paper.
  - Global Property Guide (data for 2007 onward for Egypt, Jordan, Lebanon, Morocco, Tunisia, UAE).
  - Colliers International House Price Index (HPI) established in 2008 for Dubai mortgaged properties; weighted average by unit type (apartment, villa, townhouse); members include HSBC Bank Middle East Limited, Barclays Bank PLC, Amlak Finance PJSC, Dubai Islamic Bank PJSC, Emirates NBD, Abu Dhabi Commercial Bank (ADCB).
- House price indices available from country authorities and data services:
  - Kazakhstan (Haver Analytics), Kuwait (National Bank of Kuwait), Oman (Haver Analytics), UAE (Colliers International).
- Other secondary sources consulted (examples): Amar Finance and Leasing; Business Intelligence Middle East; Global Investment House; Bank Audi Research Department; Marakaz Research; REIDIN; Sico Investment Bank; Shuaa Capital.
- Important data gaps: disaggregated investment (residential vs. nonresidential), consumption by type and age group, mortgage credit by banks vs. nonbanks and by resident vs. nonresident.

### Nominal vs. real dynamics: house prices and CPI rents (figures and descriptive results)
- Time series windows and figures referenced:
  - Figure 2: Nominal and Real House Prices in Four MCD Countries, 11/2005-7/2009 (Sources: Colliers International, Haver Analytics, National Bank of Kuwait).
  - Figure 3: Nominal and Real CPI Rent, 1/1990-7/2009 (Sources: Bloomberg and Haver Analytics).
  - Figure 4: Comparison between Real House and Rental Price in Four MCD Countries (2003 - 2009) (Sources: National Bank of Kuwait, Colliers International, Haver Analytics, Bloomberg).
- Empirical observations:
  - Nominal CPI rents experienced strong appreciation in almost all countries in the past two decades, whereas real CPI rents have been much more stable.
  - Real house price dynamics exhibit similar patterns to nominal house price dynamics; nominal and real rental dynamics differ substantially.
  - House price fluctuations are much stronger than rental price dynamics, implying house prices are more pro-cyclical and may amplify the business cycle.
- Cross-country differences are pronounced (examples cited):
  - For Oman, both real house and rental prices appreciated after 1/2006.
  - For Kuwait and the UAE, strong depreciation in house prices in 2008 and 2009 coincided with real rental prices going up.

### Causality and co-integration between CPI rents and overall CPI
- Granger causality tests (nominal series):
  - In six out of ten EMCD economies (Egypt, Jordan, Kuwait, Oman, Pakistan, Saudi Arabia), nominal CPI rents Granger cause the overall CPI index.
  - In four economies (Kuwait, Morocco, Oman, Tunisia) the overall CPI index Granger causes CPI rents.
  - For the UAE and Kazakhstan, overall CPI and CPI rents do not Granger cause each other.
- Co-integration tests (quarterly data):
  - Co-integration between CPI rents and overall CPI index is not rejected in four countries: Egypt, Kuwait, Morocco, Oman.
  - Interpretation: in six out of ten EMCD economies (Jordan, Kazakhstan, Pakistan, Saudi Arabia, Tunisia, and the UAE) nominal CPI rents dynamics are not driven by the overall CPI index, suggesting rental dynamics may be driven by positive demand shocks in the rental market.

### Timing and magnitude of housing busts (Box 2: The Bust in the Housing Price Bubble)
- Metrics used to proxy bubble dynamics: real house prices and house-price-rental ratios (Poterba, 1991).
- Coverage for bubble proxies: Kazakhstan, Kuwait, Oman, UAE.
- Timing and patterns:
  - Earliest correction in the house price-rental ratio: Oman in May 2007 — more than a year earlier than in the UAE.
  - Correction in house prices in Kuwait and the UAE took place during Q4 2008 (later than elsewhere).
  - UAE and Oman appear to have bottomed out in house prices during Q1-Q2 2009.
- Magnitude differences:
  - Kuwait and Oman experienced much milder corrections than Kazakhstan and the UAE.
  - For Kazakhstan and the UAE, the house price-rental ratio decreased 50 percent within a 7 month period.
- Interpretations offered:
  - Cross-country differences reflect (1) varying extents/timings of housing bubbles and (2) segmentation between rental and owner-occupied markets.
  - In Kazakhstan and Oman, substitution between ownership and rental existed, leading to sharp corrections when price-rental ratios peaked.
  - In Kuwait and the UAE, segmented markets (nationals as owners, expatriates as renters) limited substitution and delayed/broadened corrections, consistent with a pure bust from overvaluation rather than adjustment via substitution.
- Policy implication highlighted:
  - Where housing and rentals are not substitute goods, stabilization policies aimed at dampening housing’s amplification of the business cycle could be futile.

### Housing and the macroeconomy (V. Housing and the Macro Economy)
- Literature synthesis:
  - Two main channels linking housing to macroeconomy: consumption smoothing and residential investment.
  - More developed mortgage markets allow consumption smoothing but can increase housing demand and fuel booms, potentially increasing macroeconomic instability (Aoki et al 2002; Muellbauer 2007; WEO 2008a).
  - Residential investment is a leading indicator of recessions (Leamer 2007); in OECD countries residential investment usually leads the business cycle by one to two quarters (WEO 2008a).
  - Additional findings from country studies: house price–consumption links vary by cohort and over time; mortgage market structure and integration with capital markets affect elasticities and financial accelerator channels.
- Descriptive evidence for EMCD:
  - Limited house price data restricts full econometric assessment; descriptive analysis builds links between housing and macro variables for available series.
  - Kuwait example (Figure 5): prior to 2005 per capita consumption and house prices co-moved; after 2005 they moved in opposite directions — suggesting stronger substitution between private consumption and housing post-2005.

### Mortgage market development and consumption volatility (Figure 6)
- Mortgage Market Index (MMI) correlations with private consumption volatility:
  - 1989-99 average panel: correlation between MMI and private consumption volatility: -0.28; t-statistic: -0.76.
  - 2000-08 average panel: correlation between MMI and private consumption volatility: -0.47; t-statistic: 2.43.
- Interpretation:
  - Greater mortgage market development is associated with lower detrended per capita private consumer spending volatility in 2000-08 relative to 1989-99.
  - Kuwait and Qatar appear as outliers in the fitted relationships, suggesting other explanations (including wealth effects) may also drive the observed patterns.
- Data sources: national accounts and authors' calculations; National Bank of Kuwait, IFS, Haver Analytics.

### Segmentation between housing and rentals and determinants of rental dynamics (lead into Section VI)
- Evidence indicates segregation between housing (owner-occupied) and rental markets in EMCD, particularly in NOE with large expatriate shares.
- Implication: shortage in housing supply and high expatriate worker shares likely contribute to limited substitution between ownership and renting, increasing price volatility and bubble risk.
- Section VI previews:
  - CPI rents data is relatively more available across EMCD economies.
  - Panel data analysis is used to estimate long-term fundamental determinants of real rental price growth.
  - Preliminary conclusion: segregation between housing and rentals is corroborated; rental markets in EMCD appear driven by expatriate worker demand (proxied by remittances) and expatriate population size in addition to aggregate price level.

*Source: Excerpts from the provided PDF content.*

### section is that the property ladder may be shorter in EMCD (compared to advanced

### _wp09288 - section is that the property ladder may be shorter in EMCD (compared to advanced

### Key findings on housing vs. rental dynamics in EMCD
- The property ladder may be shorter in EMCD (compared to advanced economies), as home buyers may directly enter the housing market without first renting. Consequently, the housing market is more sensitive to the business cycle and general economic conditions (i.e. more pro-cyclical thus potentially magnifying the cycle when policies are being geared to dampening it).
- Descriptive comparison suggested housing prices experienced a much stronger appreciation during the last decade relative to rents.
- The fundamental determinants of long-run rental prices in EMCD are different from the literature on advanced economies: youthful working-age population (including expatriate workers), remittances, and credit growth linked to regional wealth effects (oil boom) matter more than the interest rate channel.
- Monetary policy and its transmission have not been fundamental determinants of the region‘s rental price dynamics.

### Data
- Annual data for the period 1989-2008 from Bloomberg, Haver Analytics, IFS and the World Bank‘s World Development Indicators was employed.
- Sample: 33 EME, balanced between NEE and NEI — including ten EMCD economies. Listed EMCD economies: Argentina, Brazil, Bulgaria, Chile, China, Colombia, Croatia, Czech Republic, Ecuador, Estonia, Egypt, India, Indonesia, Israel, Jordan, Kazakhstan, Korea, Kuwait, Malaysia, Mexico, Morocco, Oman, Pakistan, Philippines, Poland, Qatar, Russia, Saudi Arabia, Serbia, South Africa, Thailand, Tunisia, and the UAE.
- Note: Appendix Table A.1 referenced for list of data sources and definitions.

### Estimation strategy
- Method: cross-country panel regression with fixed effects to model the real rental price growth rate.
- Rationale: model the growth rate of the real rental price (rather than the level) to avoid spurious regression given many regressors are non-stationary and supply rigidity in EMCD implies demand-side driving of rental prices.
- Standard model specification (equation (1)) regressors:
  - real per capita GDP growth (△ln y_it)
  - real long-term lending rate (ln (1+R_it))
  - working population growth (△ln Wpop_it)
  - real credit growth (△ln Credit_it)
- Interpretations of channels:
  - Quantity effects: higher real per capita GDP growth, working population growth, and credit growth → positive effects on both house and rental prices.
  - Price effect: higher mortgage/lending rate → negative effect on house prices but positive effect on rental prices via substitution.
- Caveats noted:
  - Heterogeneity across countries may not be fully captured by fixed effects (ownership vs. rental shares vary; degree of segregation between segments varies).
  - Spillovers from ownership (house) segment to rental segment — e.g., house price bust could raise rental prices via switching.

### Empirical results — Standard Panel with Fixed Effects (Table 3)
- Coefficients reported (with standard errors in parentheses). Table columns correspond to models: columns 1, 3, 5 for emerging MCD economies only; columns 2, 4, 6 for all emerging markets; column 7 for GCC countries.
- Coefficients of △ln y_it:
  - 0.01 (0.05)
  - 0.325*** (0.086)
  - -0.02 (0.047)
  - 0.0982 (0.067)
  - -0.0339 (0.046)
  - 0.0816 (0.068)
  - -0.0600 (0.040)
- Coefficients of △ln Wpop_it:
  - 0.567** (0.19)
  - 0.165 (0.52)
  - 0.455** (0.18)
  - 0.0687 (0.39)
  - 0.401** (0.17)
  - 0.0616 (0.39)
  - 0.445*** (0.15)
- Coefficients of ln (1+R_it):
  - -0.402*** (0.13)
  - 0.636*** (0.043)
  - -0.199 (0.15)
  - 0.617*** (0.046)
  - -0.760*** (0.17)
  - (no value listed in some columns)
- Coefficients of △ln Credit_it:
  - 0.129** (0.053)
  - 0.0234 (0.017)
  - 0.0914* (0.049)
- Coefficient of △ln Remittance_it:
  - 0.0668* (0.036)
- Sample sizes (N):
  - 683, 206, 832, 068, 320, 43 (as presented)
- R^2 values:
  - 0.3342, 0.1225, 0.4317, 0.4950, 0.4858, 0.4984, 0.7632

- Key inferences from Table 3 and accompanying discussion:
  - For EMCD the significant regressors are working-age population and credit growth.
  - For all EME, only the interest rate channel is significant (consistent with empirical literature on advanced economies).
  - Column 3 shows interest rate has a negative effect on real rental price, suggesting shrinking firm investment dominates substitution between housing and rental market in the interest rate channel.
  - Column 5 shows credit growth significant while interest rate is not — suggesting a prominent credit channel.
  - Adding remittance proxy for expatriate workers (in GCC regressions) does not render credit growth insignificant and raises R^2, suggesting both expatriate-driven demand and domestic employment-driven demand influence rentals in the GCC.

### Dummies, interaction terms, and omitted regressors (Table 4)
- Interaction terms introduced:
  - ln (1+R_it) × MCD
  - △ln Wpop_it × MCD
- Additional regressors added for robustness: oil price, steel price, and interaction with oil exports as proxies for supply rigidities.
- Selected coefficients reported (Table 4; columns correspond to model variants):
  - △ln y_it:
    - 0.0816 (0.068)
    - 0.0383 (0.067)
    - 0.120* (0.071)
    - 0.007 (0.021)
  - △ln Wpop_it:
    - 0.0616 (0.39)
    - -2.17*** (0.79)
    - 0.147 (0.39)
    - -1.034* (1.035)
  - ln (1+R_it):
    - 0.617*** (0.046)
    - 0.660*** (0.045)
    - 0.613*** (0.045)
    - 0.278*** (0.065)
  - △ln Credit_it:
    - 0.0234 (0.017)
    - 0.0149 (0.016)
    - 0.0183 (0.017)
    - 0.129*** (0.037)
  - △ln Wpop_it × MCD:
    - 2.615*** (0.91)
  - ln (1+R_it) × MCD:
    - -1.005*** (0.32)
  - Oil price:
    - 0.0737*** (0.026)
  - Oil price × Oil Exports:
    - -0.123*** (0.041)
  - Steel price:
    - 0.007 (0.021)
  - Steel price × Oil Exports:
    - -0.0177 (0.048)
- Sample sizes (N) in Table 4:
  - 320, 320, 320, 244 (as presented)
- R^2 values in Table 4:
  - 0.4984, 0.5305, 0.5161, 0.3486
- Implications from Table 4 and discussion:
  - Interaction results corroborate that working-age population growth (including expatriates) is significantly more positive and the interest rate is significantly more negative in EMCD.
  - Oil price increases are associated with milder real rental price growth in NOE (non-oil exporters), possibly because speculation in housing rises with oil price and reduces rental demand via switching to house purchases.
  - Steel price (construction input) is insignificant.
  - Mean-group estimator (Pesaran et al. 1999) results: none of the coefficients are significant for EMCD; for full EME sample, real per capita GDP and working population growth are significant long-run determinants while credit growth is only a short-run determinant.

### Conclusions and policy implications (section VII)
- Paper documented:
  - (i) developments in housing finance markets and their linkages to the macroeconomy;
  - (ii) characterization of housing and rental price cycles and recent corrections;
  - (iii) examination of segregation between homeownership and rental segments in EMCD.
- Empirical conclusions summarized:
  - (a) EMCD experienced a housing and rental boom-bust cycle over the past two decades;
  - (b) this was accompanied by liberalization of housing finance;
  - (c) cross-country differences in housing relate to institutional characteristics of national mortgage markets in the region;
  - (d) the predominant segment of the housing market, home ownership, is more sensitive to the business cycle and general economic conditions, thus potentially amplifying pro-cyclicality;
  - (e) mortgage market innovations are correlated with lower per capita consumption volatility this decade;
  - (f) house prices reflect bubble dynamics despite cross-country differences in timing of busts;
  - (g) house prices are decoupled from recent adverse global financial conditions due to segmentation;
  - (h) fundamental determinants of rental price dynamics differ from advanced economies, reflecting importance of youthful working-age population (including expatriates) and regional wealth effects (remittances and credit growth) associated with the oil boom—rather than the interest rate channel.
- Main policy implications:
  - (i) Improve data availability—historical, current and future coverage and frequency of house price indices, bank and non-bank mortgage credit to residents and corporates, and other disaggregated macroeconomic variables such as consumption and investment—to better monitor house price asset developments and implications for macroeconomy and business cycle.
  - (ii) Monitor and understand consequences of relaxing household budget constraints through mortgage market innovation for aggregated demand via consumption and investment, including lead-lag relationships with the business cycle and adequacy of prudential regulation of the mortgage market to avoid excessive buildup of vulnerabilities.
  - (iii) Further analyze amplification of the business cycle due to house price fluctuations to assist policymakers in designing appropriate stabilization policies.

*Source: _wp09288 - section is that the property ladder may be shorter in EMCD (compared to advanced; PDF chapter content provided).*

### Appendix Box A.2. Common Islamic (shari’a-compliant) Mortgage Instruments

### Appendix Box A.2. Common Islamic (shari’a-compliant) Mortgage Instruments

### Overview of instruments
- Ijara (akin to a lease)
  - A financer purchases an asset and leases it to a client through a leasing contract for a specified rent and term.
  - The owner of the asset (the financier) bears "risks and rewards" associated with ownership and sells it to the client upon payment of the last installment.

- Musharaka mutanaqisa (akin to a declining-balance mortgage)
  - An equity participation contract under which a financier and its client contribute jointly to purchase a home (e.g. financier (80%) and client (20%)).
  - Ownership is distributed according to each party's share in the financing (co-ownership).
  - The title deed is held in the name of the financier and transferred to the client‘s name upon payment of the last installment.

- Murabaha (akin to cost-plus financing)
  - Mortgage with maximum term of 18-20 yrs usually.
  - Typical down payment: 30%.
  - Includes insurance.
  - Key underwriting criteria include debt-service-to-income ratio of <33%, payment of house appraisal fees and submission of other documents.

- Furijat
  - Mortgage of shorter-duration (6 yrs).
  - (5.5)% murabaha profit mark-up adjustable over duration of loan.
  - Refinancing possible after 25% paid up.

- Yusur
  - The first adjustable repayment mortgage.
  - Enables the borrower to pay lower monthly installments for up to three years.

### Key features and underwriting criteria (summarized)
- Ownership structures: financier-held title until last installment (Ijara, Musharaka mutanaqisa).
- Typical financing shares example: financier (80%), client (20%).
- Typical Murabaha terms: maximum term of 18-20 yrs; down payment 30%; debt-service-to-income ratio of <33%.
- Short-duration product example: Furijat — 6 yrs, (5.5)% profit mark-up, refinancing after 25% paid up.
- Payment flexibility: Yusur allows lower monthly installments for up to three years.

*Sources: Saudi Home Loans (2007) and Merrill Lynch (2007)*

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