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.


Pay for Britain’s top bosses rises 23 percent

Updated 15 August 2018
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Pay for Britain’s top bosses rises 23 percent

  • Excessive corporate pay has attracted public anger since the financial crisis
  • The increase far exceeds the 2.5 percent increase in average salaries for British workers to £29,009

LONDON: Pay packages for the bosses of Britain’s 100 biggest listed firms rose 23 percent over the past year, fueled by payouts for the CEOs of house builder Persimmon and industrial firm Melrose Industries, a survey showed on Wednesday.
Excessive corporate pay has attracted public anger since the financial crisis and Prime Minister Theresa May has denounced the gap between the amounts paid to bosses and average workers as irrational and unhealthy.
The survey by the Chartered Institute of Personnel and Development (CIPD) and the High Pay Center thinktank showed the average income for chief executives of companies in the FTSE 100 share index was £5.7 million ($7.25 million) in their financial year ending in 2017, up 23 percent from the previous year.
The increase far exceeds the 2.5 percent increase in average (mean) salaries for British workers to £29,009, according to the Office for National Statistics.
A similar study a year ago showed bosses’ average pay had dropped by 17 percent over the previous year.
CIPD said the strong performance of the stock market in the years to 2017 was probably a factor in this year’s increase but that this should prompt questions about the contribution of individual bosses to share performance as opposed to other factors such as economic context or the wider workforce.
The CIPD report said the mean figure was skewed by very large payouts to the bosses of house builder Persimmon and Melrose Industries.
Excluding these two chief executives would bring the mean single figure down from £5.7 million to £4.8 million, still representing a 6 percent increase from the previous year.
The highest paid CEO in the financial year ending 2017 was Persimmon’s Jeff Fairburn, who received £47.1 million, more than 20 times his pay in 2016, largely due to a long-term incentive plan dating back to 2012.
That plan gave share options to managers of Britain’s second-biggest house builder which they could sell once the company had returned a set level of cash and dividends to investors.
In February 2018 it scaled back these rewards amid criticism that a government scheme had bolstered house builders.
Simon Peckham, chief executive of Melrose Industries, an industrial turnaround specialist that clinched an £8 billion hostile takeover of British engineer GKN in March, was paid £42.8 million in the financial year ending in 2017, mainly due to a 2012 incentive plan.
A Melrose spokesman highlighted the impact of the long-term incentive plan, adding: “The salary and bonus of the CEO was £974,000 last year which puts him squarely in line with the average pay ratio for employees as evidenced in the report.”
A spokeswoman for Persimmon was not immediately available to comment.