The role of the banking sector in financing the real estate and contracting sector in the Palestinian territories

• DOI: https://doi.org/10.1108/IJHMA-11-2020-0135
• Published date: 06 May 2021
• Date: 06 May 2021
• Pages: 357-374
• Subject Matter: Property management & built environment,Real estate & property,Housing markets
• Author: Mohammad Kamal Abuamsha

The role of the banking sector in

financing the real estate and

contracting sector in the

Palestinian territories

Mohammad Kamal Abuamsha

Department of Finance and Banking, Faculty of Business and Economics,

Palestine Technical University, Khadouri, Tulkarm, Palestinian Authority

Abstract

Purpose –The study aims to identify the reality of the role of the banking sector in financing the Palestinian

real estate and construction sector. The study demonstrated the importance of this issue by highlighting the role

that Palestinian banks play in treating the problem of the increasingdemand for housing because of the natural

increase in population numbers and their various needs, and through knowledge of historical development for

banks and the facilities they provided, especially to the real estate and construction sector.

Design/methodology/approach –This study carried out data from (2000–2019). The descriptive

analytical methodand regression method was used for analyzing the measurement model. Holt’smethod was

used to estimatethe size of housing units needed in the Palestinian territories over the next seven years.

Findings –The study concluded that there is a need to build about (200,000) residential units in the next

seven years, and the study recommended the necessity of increasing the pooled contribution of banks and

directing part of it to the real estate and construction sector, amending legislative laws for the real estate

market and construction, reducing taxes on building supplies and encouraging the private sector with

stimuluspolicies or share.

Practical implications –The study provided results and data regardingthe state of the housing sector

and how its financed by Palestinianbanks; it clarified the limitations and difficulties that face this sectorand

providesa clear path for what needs to be done to develop this sector and overcome its barriers.

Originality/value –This current study contributesto focusing on the reality of the banking sector and its

role in financing the real estate and construction sector,in addition to the appropriate period of time for the

study, which ranges between2000 and 2019, which is a period sufficient to identify the realityof Palestinian

real estateand construction and banks and the relationship between them.

The researcher believesthat the study differed from its predecessors through an in-depthanalysis of the

existing relationship between cash assets and real assets, given that the priority of real assets over cash

assets, as cash assets are consideredas real over cash assets, but they do not constitute a substitutefor them

in economic development, the studycontains a vision that recommends linking the activities of the banking

sector witheconomic and social problems and the national issue, i.e. independenceand self-determination.

Keywords GDP, Housing, Banking sector, Population, License, Real estate and construction

Paper type Research paper

Introduction

The real estate and contracting sectorin the world in general and in the Palestinian territory

in particular is consideredan important sectorin stimulating economic growth and reducing

the existing economic and socialproblems, as the growth of the Palestinian GDP depends on

Many thanks to the Palestine Technical University-Khadoori-Tulkarm, Palestine, for their support.

Financing the

real estate

357

Received13 November 2020

Revised18 February 2021

Accepted2 March 2021

InternationalJournal of Housing

Marketsand Analysis

Vol.15 No. 2, 2022

pp. 357-374

© Emerald Publishing Limited

1753-8270

DOI 10.1108/IJHMA-11-2020-0135

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1753-8270.htm

many activities, includingthe construction sector, which is an essential support for growth.

According to the Palestinian CentralBureau of Statistics (PCBS) (2019), the constructionand

real estate sector accountedfor 7% of the gross domestic product(GDP).

On the other hand, and with the development in economic life, a remarkable growth

occurred in the banking sector, where the volume of depositsin 2017 reached about 8,625.8

million, and in 2018, US$1,125.54m in 2019 in banks about US$1,300m, while consumer

credit facilities in the year 2017 accounted for about US$4,480.8m. In total, 53.9% of the

volume of deposits, and in 2018,credit facilities accounted for US$4,871.0m, or 56.5% of the

volume of deposits, and in 2019, the credit facilities amounted to US$5,805.4m or 44.7% of

the volume of deposits.

On the other hand, the size of the real estate sector in Palestine in 2017 was about US

$1,750.5m, and in 2018, about US$1,995.2, while in 2019, it reached about US$2,145.45m,

and the volume of real estate financing reached US$790.1 for the year 2017, 45.1% of the

sector’s size. The real estate financing amounted to US$952.5m in 2018, at 47.74% of the

real estate sector, and the volume of real estate financing amounted to US$1,213.4m in

2019, 56.6% of the real estate sector, according to (PMA data for the years 2017 and

2018, 2019), it is assumed that it contributed to financing economic projects, including

real estate and contracting sector projects, as financing housing projects is considered

financing for productive projects, in contrast to the prevailing trend in the Palestinian

banking system, which is predominantly consumer financing at the expense of real

economic production.

Housing is considered a basic human right in the international arena, according to the

Universal Declaration of Human Rights (1948). Moreover, the Habitat II conferences

organized by the UnitedNations emphasized the importance of housingwith a central theme

of the UN-Habitat agenda,“adequate housing for all”(Habitat II, 1996).

However, like in other developing countries, according to the Palestinian Housing

Council –PHC (2021), housing is a major problem in Palestine. In very general, authorized-

housing shortage in urban areas, unqualified housing stock with poor conditions and

affordability of housing are the main issues related to housing problem due to the rapid

urbanization and high populationgrowth. In addition to these, unequal income distribution,

insufficient capital accumulation, lack of financial resources, which can be allocated to

housing due to high inflation rates and high budget deficits make the housing problem

worse in our country.

Statement of the problem

Due to the repeated economical and social crises that face the Palestinian state, and the

effects that these crises have on thesocial and economical aspects in Palestine, a number of

sectors were directly affected, one of these sectors was the real estate and construction

sector. Israel controls a large part of the West Bank, Abu Hantash(2009).Hussain Sabri and

Hasan Sweis (2016) stated that the presence of settlements in addition to the necessity to

move away from settlements in the construction process, in addition to classifying lands

into Areas A, B and C, and construction in Areas B and C is prohibited withoutthe approval

of the Israeli authorities. All of these greatly affect the limited real estate and construction

sector in the Palestinian territories, in addition to undermining the mortgage operations,

which will reflect negativelyon the finance given from banks to this sector.

According to Hussain Sabri and Hasan Sweis (2016), the role of the banking system is

very important in financing economic development projects through the credit facilities it

provides, it is considered one of the most importantsources of growth of the real estate and

contracting sector in Palestine.Where the role of loans cannot be overlooked in covering the

IJHMA

15,2

358