Saudi Arabia's quasi-parliament has approved a draft of the long-awaited mortgage law, paving the way for its approval by the government to allow more Saudis to own property and for banks to diversify income sources.

The advisory Shura Council, whose 150 members are appointed by the king, on Tuesday ended a debate on four components of the mortgage law, state news agency SPA reported late on Tuesday.

The law, which has been in the works for almost a decade, is hoped to allow much wider access to property ownership in a country where only one out of five Saudis owns a home, according to some realtors.

The approval also comes at a time when Saudi Arabia, the world's largest oil exporter, is struggling to manage excessive liquidity from record oil receipts while the government is under greater public scrutiny over the use of this wealth.

The draft was heavily criticised by some. Prominent industrialist and Shura member Abdul-Rahman Zamil said the law as it stood will not benefit 85 per cent of Saudis whose monthly income is below 5,000 riyals ($1,333).

'It will benefit the large real estate firms, large real estate investors, large financial institutions and the middle class,' Al-Madina newspaper cited him as saying on Monday.

Zamil, a former government minister, could not be reached for comment.

John Sfakianakis, chief economist at HSBC's Saudi subsidiary the SABB bank, said the mortgage law's potential impact has been 'hyped up' despite a favourable interest rate environment.

'The mortgage law will not necessarily be a turning point for the housing market as a lot of people have already reached their borrowing limits because of the stock market crash,' he said.

'It will take more time than people envisage to solve the housing issue in Saudi Arabia ... It's not going to be done in two years.'    

At least two-thirds of Saudis do not own a home, against 35-32 percent in Europe and the United States, he said. Other estimates are lower, with Abdullatif al-Shelash, managing director of Saudi Home Loans Co (SHL), saying in remarks published in December that only 22 percent of Saudis own a home.

But hundreds of thousands of Saudis were severely hurt by a crash that hit the local bourse in 2006, with many forced to sell their homes to repay money they borrowed from banks in the hope of making quick fortunes by buying shares.

The crash has prompted many investors to shift their focus to real estate. In May 2007, property developer Taiba said it had made a 59 percent return on a parcel of land it had bought six months earlier in the capital Riyadh.

In addition to the speculative surge in the price of land, the vast majority of Saudis are struggling to cope with a surge in inflation, now at multi-decade highs, which has also impacted construction costs.

'This has created exorbitant housing prices which become less affordable for the average Saudi who is ending up with less disposable income,' Sfakianakis said.

The kingdom has witnessed a boom in construction and infrastructure projects but realtors say the deficit in housing especially for low-income households has not been reduced.

The kingdom will need some 4.5 million new housing units within the next five years to accommodate its rapidly-growing population, SHL's Shelash said in remarks published by Arabian Business magazine. - Reuters