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.


Indonesia’s Go-Jek close to profits in all segments

Updated 18 August 2018
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Indonesia’s Go-Jek close to profits in all segments

  • Go-Jek is Indonesia's first billio-dollar startup
  • Ride haling app evolves into online payment platform

JAKARTA: Go-Jek, Indonesia’s first billion-dollar startup, is “extremely close” to achieving profitability in all its segments, except transportation, its founder and CEO Nadiem Makarim told Reuters.

Launched in 2011 in Jakarta, Go-Jek — a play on the local word for motorbike taxis — has evolved from a ride-hailing service to a one-stop app allowing clients in Southeast Asia’s largest economy to make online payments and order everything from food, groceries to massages.

“We’re seeing enormous online to offline traction for all of our businesses and are close to being profitable, outside of transportation,” said the 34-year old CEO.
The startup is expected to be fully profitable “probably” within the next few years, Makarim added.

Already a market leader in Indonesia, where it processes more than 100 million transactions for its 20-25 million monthly users, Go-Jek is now looking to expand in Southeast Asia.

Ride hailing services in Southeast Asia are expected to surge to $20.1 billion in gross merchandise value by 2025 from $5.1 billion in 2017, according to a Google-Temasek report.

Go-Jek said in May it would invest $500 million to enter Vietnam, Singapore, Thailand and the Philippines, after Uber struck a deal to sell its Southeast Asian operations to Grab — the bigger player in the region.

Go-Jek is seeing strong funding interest from its backers as it targets an aggressive expansion, Makarim said.

“Since its Aug. 1 launch, the app has already grabbed 15 percent of market share in Ho Chi Minh,” Makarim said. The firm this week opened recruitment for motorcycle drivers in Thailand.

The startup expects anti-monopoly concerns swirling around the Grab-Uber deal, which Singapore said had substantially hurt competition, to help clear a path for its expansion.

“We’re bringing back choice. The Singapore government is particularly eager to bring back competition,” Makarim said, adding that the order of overseas rollouts had not been set.

Go-Jek’s offshore push comes at a time when Singapore-based Grab is stepping up funding to expand in Indonesia and transform itself into a consumer technology company, starting with a partnership with online grocer HappyFresh.

“Mimicking Go-Jek’s strategy is the highest form of flattery,” laughed Makarim.

Grab told Reuters in a statement, “The super app strategy has been around for a while now and no Southeast Asian player can claim to have pioneered it.” The company also said Grab has not lost market share in Ho Chi Minh since August, but declined to provide market share data.

Makarim believes Go-Jek’s understanding of food merchants will give it an edge over Grab, which counts investors such as Chinese ride-hailing firm Didi Chuxing and Japan’s SoftBank Group Corp. among its backers.

Makarim, who sees food delivery as Go-Jek’s core business, said he was not concerned about funding, without giving details.

Go-Jek was reported in June as being in talks to raise $1.5 billion in a new funding round and was valued at about $5 billion in a prior fundraising, sources have told Reuters. The firm had said in March it was considering a domestic IPO.

Makarim noted Go-Jek’s backers were sharing both capital and expertise. The company is collaborating with Alphabet Inc’s Google on platform mobility, Tencent on payments strategy, JD.com on logistics operations, and Meituan Dianping on merchant transactions and deliveries.

Go-Jek has set up a venture capital arm, Go-Ventures, to invest in startups in Southeast Asia “with strategic importance to our business,” the CEO said.