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.


GCC citizens eye properties in Oman as number of buyers rises

Many Gulf nationals often buy properties in prominent tourist spots. (File/AFP)
Updated 21 October 2018
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GCC citizens eye properties in Oman as number of buyers rises

  • An increase of 17.63 percent has been recorded

DUBAI: The number of GCC citizens buying properties in Oman has risen by 17.63 percent according to the country's National Center for Statistics and Information, local daily Times of Oman reported on Sunday.

The statistics show that 1,038 properties were purchased by GCC nationals in August 2018, compared to the 855 purchased last year.

“The increase in the number of GCC nationals’ ownership of plots in Oman is because they benefit from the returns on investment in the real estate sector and its value, compared to some other Gulf states. Some of them also buy plots because they have relatives in Oman and want to live near them. Some have inherited land plots because they are of Omani origin, in addition to the desire of many investors to own property in some provinces because of the weather and moderate climate,” an official from Oman’s housing ministry said.

GCC nationals often buy properties in prominent tourist spots in Oman, according to Ahmed Al-Hooti, a member of the Oman Chamber of Commerce and Industry.

“Many nationals from Saudi, Qatar, UAE and Bahrain come here and buy properties in popular tourist spots such as Salalah, Masirah Island, and eastern beaches such as Ras Al Hadd for activities such as fishing,” Al-Hooti said.