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.


Relief for UK buyers as consumer prices drop more than expected

Updated 17 October 2018
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Relief for UK buyers as consumer prices drop more than expected

  • Consumer prices rose at an annual rate of 2.4 percent, more than reversing August’s jump to a six-month high of 2.7 percent
  • The figures are likely to reassure Bank of England officials

LONDON: British inflation fell more than expected in September to a three-month low, offering some relief to consumers who have been squeezed financially since the Brexit vote.
Consumer prices rose at an annual rate of 2.4 percent, more than reversing August’s jump to a six-month high of 2.7 percent, the Office for National Statistics said.
That was well below the consensus forecast of 2.6 percent in a Reuters poll of economists.
Sterling fell against the dollar and euro while British government bond prices rose.
The figures are likely to reassure Bank of England officials who forecast in August that inflation would average around 2.5 percent over the July-September quarter.
“Coupled with the gradual up-tick in wages, the slowing rise in prices will deliver a boost to consumers’ real take-home pay packets, which will also be welcome news for retailers,” said Tej Parikh, senior economist at the Institute of Directors.
“The Bank of England will be unruffled by this week’s data releases, and remains unlikely to budge on interest rates as it continues to monitor the impact of Brexit developments.” The BoE expects it will need to raise interest rates gradually in response to rising wages, assuming Britain manages to strike a deal with the European Union to smooth its exit from the bloc.
On Tuesday, the ONS said the basic wages of workers had risen at their fastest pace in nearly a decade over the summer months.
But wage growth of 3.1 percent remains meagre by historical standards when adjusted for inflation.
The BoE expects inflation to drift down but stay just above its 2 percent target in two years’ time as it gradually raises borrowing costs.
Consumer price inflation hit a five-year high of 3.1 percent in November, when the inflationary effect of the pound’s tumble after the Brexit vote in June 2016 reached its peak.
The ONS said food prices, particularly of meat and chocolate, represented the biggest drag on September’s inflation rate.
Ferry prices dropped from a “surprisingly high” summer peak.
Still, there could be more short-term pressure in the pipeline for consumer prices.
For manufacturers, the cost of raw materials — many of them imported — was 10.3 percent higher than in September 2017, up from a revised 9.4 percent in August.
That was a bigger jump than any economist had forecast in the Reuters poll, which anticipated a rise of 9.2 percent.
Manufacturers increased the prices they charged by 3.1 percent compared with 2.9 percent in August, again stronger than all forecasts in the poll, which had pointed to a 2.9 percent increase.
The ONS said house prices in August rose by an annual 3.2 percent across the UK as a whole, the smallest rise since August 2013 and compared with a 3.4 percent increase in July.
Prices in London alone slipped 0.2 percent.