Arab News, Thursday, Jun 14, 2018 | Ramadan 29, 1439
Fixed-rate mortgages to boost Saudi Arabia’s home ownership
Saudi home buyers will be able to tap long-term,
fixed-rate mortgages for the first time as part of a $32 billion push to raise
The Saudi Real Estate Refinance Company (SRC) plans to roll out new funding to
the Kingdom’s lenders, which in effect means buyers will no longer be held
hostage to US interest rate movements.
The Public Investment Fund-backed finance company will soon be able to support
long-term, fixed-rate mortgages and also plans to launch its first debt issuance
next month, CEO Fabrice Susini told Arab News.
Gulf economies with currencies pegged to the US dollar typically raise and lower
interest rates in tandem with the Fed.
Interbank borrowing rates in Saudi Arabia and the UAE for example have been
ticking up in line with US interest rates — making loans more expensive to
While floating rates can sometimes reward
borrowers, they can also punish them when rates begin to rise.
The current cycle of rising US interest rates comes at a time of sluggish growth
and property market weakness across the Gulf.
“In the context of Saudi Arabia or any pegged country, the interest rate
variation is partly outside the control of the domestic central bank,” said
Susini. “So globally, it means that my mortgage can become unaffordable
regardless of my personal situation or even my immediate economic environment.
Long-term fixed rates mitigate or address most of these risks or drawbacks.”
Mortgaged properties account for a tiny proportion of the overall housing stock
in the Kingdom, where in the past house construction has often been self-built
and more informally financed.
SRC estimates there are just 160,000 mortgages outstanding in a population of
more than 31 million.
Susini said that there were also moves underway to encourage banks to extend
mortgage lending beyond civil servants and the employees of select companies.
Such lending criteria have in the past put
mortgage finance beyond the reach of many people in the Kingdom.
SRC wants to acquire existing loan portfolios from lenders seeking to boost
liquidity. It also plans to package loan portfolios into mortgage-backed
securities to sell to domestic and international investors.
SRC was set up last year with initial capital of about SR5 billion ($1.33
billion) from the Kingdom’s Public Investment Fund. Helping Saudis to buy their
own affordable homes and boosting the contribution of property to overall
economic growth is part of Saudi Vision 2030 — a blueprint for economic
diversification that aims to wean the Kingdom off its oil dependence.
Saudi Arabia wants to boost its primary home loans market from SR290 billion to
SR500 billion by the end of the decade and to as much as SR800 billion within 10
The government also aims to boost home ownership among Saudi citizens from 50
percent to 60 percent.
Like other regional markets, Saudi house prices weakened further last year as
the low oil price combined with limited access to financing and a housing supply
shortage began to weigh on the sector. Yet despite the housing market
weaknesses, analysts are upbeat on the market’s prospects largely because of the
existing pent-up housing demand and the intention of the government to invest
heavily in boosting home ownership.
“The slowdown in the residential market continued in 2017 as tightening market
liquidity weighed on transaction volumes and prices,” said Knight Frank analyst
Raya Majdalani in the real estate consultancy’s review of the market published