|04 December, 2017

Saudi mortgage refinancing firm to court foreign investors

Demand for real estate financing is set to top $133bln by 2026: officials

Image used for illustrative purpose. Labourers work at the construction site of a building in Riyadh, Saudi Arabia, October 18, 2017.

Image used for illustrative purpose. Labourers work at the construction site of a building in Riyadh, Saudi Arabia, October 18, 2017.

REUTERS/Faisal Al Nasser
LONDON - Saudi Arabia’s first mortgage-refinancing firm will actively court international investors to increase liquidity in the Kingdom’s housing market, said the CEO of the initiative.

The newly established Saudi Real Estate Refinance Company, which seeks to free up liquidity in the Kingdom’s mortgage market to promote homeownership, has already embarked on “soft discussions” with investors interested in the new market opportunity, CEO Fabrice Susini told Arab News.

“It’s not good enough simply to focus on the country and domestic investors. We want to have foreign investors interested in coming and investing into these loans or portfolios,” said Susini, who was picked to lead the state-run company, which officially launched in October.

With $1.3 billion in initial capital, the SRC will use a range of tools from buying mortgage portfolios to issuing mortgage-backed securities  to incentivize lenders to give more loans to Saudi homebuyers.

According to Saudi officials, the demand for real estate financing is set to top SR500 billion ($133 billion) by 2026.

But Saudi citizens, particularly young people, have been hit in recent years by the double blow of a Kingdom-wide housing shortage and risk-averse banks wary of lending.

The Kingdom has announced plans to raise the rate of home ownership from 47 percent to 52 percent by 2020. By comparison, the US and UK both have home ownership rates above 60 percent.

Establishing the SRC, which expects to refinance up to $20 billion over the next five years, is part of an effort to remedy the nation’s low mortgage penetration rate, Susini said.

The SRC, which works under the auspices of the Ministry of Housing, will initially court investors closer to home.

“Our strategy is to go gradually, starting with the region, (with) countries which are close and knowledgable about the Saudi environment and the Shariah compliance,” Susini said. “As we will create credentials and history on the portfolios themselves … we will go after investors which are further away from the Kingdom or the region,” he said.

Secondary mortgages, which drew global attention during the financial crisis of 2008, are new to Saudi Arabia. According to reports, the Kingdom’s financial leaders have been working with American consultants to launch the enterprise for several years.

But Susini stressed that easing the mortgage process for average Saudi citizens is the SRC’s primary objective. “The SRC is really (meant) make sure that more people get access to home ownership,” he said. “The rest … the way we organize … all this is done in the kitchen. You are at the restaurant; we want people to have a good dish, at an affordable price. What happens in the kitchen, let’s leave it in the kitchen,” he said.

Asked when the company would officially launch operations and put the existing capital to work, Susini was circumspect. “Soon,” was all he revealed.

In an economy where cash is king and people are accustomed to paying upfront, new market realities will require new financing tools. “We need to explain why a reasonable amount of debt is advisable and will help fund your objectives,” Susini said.

Susini, who worked as a fixed income specialist at BNP Paribas for two decades, said that the SRC would help unlock capital across the entire real estate ecosystem. With more home loans available to buyers, building developers may be more keen to launch projects, he posited.

Broadening the country’s real estate sector is part of Crown Prince Mohammed bin Salman’s effort to wean Saudi Arabia off oil dependency and create modern financial markets more open to outside investment.

Reporting by ELISE KNUTSEN

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