Fixed-rate mortgages to boost Saudi Arabia’s home ownership

Residential properties in Riyadh. The Saudi government aims to boost home ownership among citizens from 50 percent to 60 percent. (Shutterstock)
Updated 13 June 2018
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Fixed-rate mortgages to boost Saudi Arabia’s home ownership

  • SRC plans to roll out new funding to the Kingdom’s lenders, which means buyers will no longer be held hostage to US interest rate movements
  • SRC estimates there are just 160,000 mortgages outstanding in a population of more than 31 million

LONDON: 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 home ownership.
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 repay.

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 in 10 years.

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 years.
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 in January.

FASTFACTS

160,000

The Saudi Real Estate Refinance Company estimates there are just 160,000 mortgages outstanding in a population of more than 31 million.


Gulf defense spending ‘to top $110bn by 2023’

Updated 15 February 2019
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Gulf defense spending ‘to top $110bn by 2023’

  • Saudi Arabia and UAE initiatives ‘driving forward industrial defense capabilities’
  • Budgets are increasing as countries pursue modernization of equipment and expansion of their current capabilities

LONDON: Defense spending by Gulf Arab states is expected to rise to more than $110 billion by 2023, driven partly by localized military initiatives by Saudi Arabia and the UAE, a report has found.

Budgets are increasing as countries pursue the modernization of equipment and expansion of their current capabilities, according to a report by analytics firm Jane’s by IHS Markit.

Military expenditure in the Gulf will increase from $82.33 billion in 2013 to an estimated $103.01 billion in 2019, and is forecast to continue trending upward to $110.86 billion in 2023.

“Falling energy revenues between 2014 and 2016 led to some major procurement projects being delayed as governments reigned in budget deficits,” said Charles Forrester, senior defense industry analyst at Jane’s.

“However, defense was generally protected from the worst of the spending cuts due to regional security concerns and budgets are now growing again.”

Major deals in the region have included Eurofighter Typhoon purchases by countries including Saudi Arabia and Kuwait.

Saudi Arabia is also looking to “localize” 50 percent of total government military spending in the Kingdom by 2030, and in 2017 announced the launch of the state-owned military industrial company Saudi Arabia Military Industries.

Forrester said such moves will boost the ability for Gulf countries to start exporting, rather than purely importing defense equipment.

“Within the defense sector, the establishment of Saudi Arabia Military Industries (SAMI) in 2017 and consolidation of the UAE’s defense industrial base through the creation of Emirates Defense Industries Company (EDIC) in 2014 have helped consolidate and drive forward industrial defense capabilities,” he said.

“This has happened as the countries focus on improving the quality of the defense technological work packages they undertake through offset, as well as increasing their ability to begin exporting defense equipment.”

Regional countries are also considering the use of “disruptive technologies” such as artificial intelligence in defense, Forrester said.

Meanwhile, it emerged on Friday that worldwide outlays on weapons and defense rose 1.8 percent to more than $1.67 trillion in 2018.

The US was responsible for almost half that increase, according to “The Military Balance” report released at the Munich Security Conference and quoted by Reuters.

Western powers were concerned about Russia’s upgrades of air bases and air defense systems in Crimea, the report said, but added that “China perhaps represents even more of a challenge, as it introduces yet more advanced military systems and is engaged in a strategy to improve its forces’ ability to operate at distance from the homeland.”