Saudi Arabia real estate reform ‘on the right track,’ housing minister tells conference

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the opening day of the Financial sector Conference in riyadh addressed big themes — housing, macro- economics, capital markets and multibillion- dollar bond issues. (SPA)
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Saudi Arabia’s real estate finance sector — crucial to the ambition of a home-owning economy under the Vision 2030 strategy — is maturing rapidly. (Shutterstock)
Updated 25 April 2019
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Saudi Arabia real estate reform ‘on the right track,’ housing minister tells conference

  • Financial Sector Conference is designed to showcase Saudi Arabia’s finance industry to a world audience
  • The most eye-catching was a plan by the Saudi Real Estate Refinance Company (SRC)

RIYADH: Saudi Arabia’s real estate finance sector — crucial to the ambition of a home-owning economy under the Vision 2030 strategy — is maturing rapidly, a high-profile event in Riyadh heard on Wednesday.
“We’re on the right track,” housing minister Majid Al-Hogail told attendees on the first day of the Financial Sector Conference, designed to showcase Saudi Arabia’s finance industry to a world audience.
His comments came as financial institutions in the Kingdom announced a raft of measures to encourage more home ownership.
The most eye-catching was a plan by the Saudi Real Estate Refinance Company (SRC) — owned by the Public Investment Fund — to issue up to SR3.75 billion ($1 billion) worth of sukuk, or Islamic bonds, this year to finance home ownership plans.
Fabrice Susini, chief executive of the company, said SRC had spent SR1.2 billion buying mortgages from local mortgage finance companies and adding liquidity to these firms. SRC is often compared to US home finance group Fannie Mae.
Reform of the financial infrastructure of the property market is regarded as crucial to Saudi Arabia’s Vision 2030 reform plans, to ensure an ownership rate of 70 percent in the privately owned housing market by 2030.
In a panel entitled “Mortgages: Bolstering Industry Appetite,” Al-Hogail spoke of the unique position Saudi Arabia has in the housing market, highlighting the relevance of a database established by the Ministry of Housing to give a better and deeper understanding of the market. The diverse nature of the market presents its own challenges, he said.
“Every city has its own different set of challenges and we can’t generalize. With the establishment of the database, it provides the ministry with a better future outlook through more detailed information, obtained through various means — whether it were through the Electric Company, through the Ministry of Municipal and Rural Affairs, or through the General Authority for Statistics and their surveys.”
“Over 16 government agencies support the housing sector to achieve Saudi Vision objectives, to increase property ownership among Saudis to 70 percent by 2030,” he said.
An official report for the first quarter of 2019 revealed that the finance market reached SR5.6 billion last March. Some 12,800 citizens received loans, and 85 percent were subsidised.
Saudi Arabia last year announced plans to boost the size of the mortgage market to SR502 billion by 2020 as part of a comprehensive plan to provide housing finance to its citizens, facilitating a balanced and sustainable housing environment through the establishment and development programs.
In other deals, Bidaya Home Finance announced three initiatives to enhance the Saudi market. Its first initiative involved the sale of Bidaya’s mortgage portfolio to SRC, valued at SR500 million over a period of six months. SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year, Fabrice Susini told Reuters in an interview. “Our strategy is clearly to tap the market twice this year,” he said.
“We are really looking at probably issuing something between SR2 to 4 billion that we may be issuing in two tranches.”
He said SRC was looking at sukuk in the 10- to 15-year range, to help minimize refinancing risks. “Generally speaking we are trying to issue as long as possible,” Susini said. He added that the company was assessing whether it could also issue bonds in currencies other than the Saudi riyal.
In March, SRC completed a SR750 million sukuk issue with multiple tenors, under a program that allows it to issue up to SR11 billion of local currency denominated Islamic bonds.


Regulators fail to set date for Boeing 737 MAX return to service

Updated 24 May 2019
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Regulators fail to set date for Boeing 737 MAX return to service

  • ‘The only timetable is to make sure the aircraft is safe to fly’
  • Boeing had held off submitting a proposed software fix for review after the US Federal Aviation Administration raised additional questions

FORT WORTH, United States: Civil aviation regulators from around the world failed to make a determination Thursday on when Boeing’s popular 737 MAX aircraft can return to the skies after being grounded following two deadly crashes.
“The only timetable is to make sure the aircraft is safe to fly,” Daniel Elwell, acting head of the US Federal Aviation Administration, said at the conclusion of the day-long meeting in Texas.
There was “enthusiastic agreement to continue the dialogue,” he said, but acknowledged that “each country has to make its own decision.”
“If they unground relatively close to when we unground I think it would help with public confidence,” Elwell said, while adding that: “We can’t be driven by some arbitrary timeline.”
Until the 737 MAX crashes in Ethiopia in March and Indonesia in October which left a combined 346 people dead, common practice was that air regulators would follow the assessment of the agency overseeing the model, in this case the FAA.
On Wednesday, Elwell threw cold water on hopes of a speedy resolution, after revealing Boeing had held off submitting a proposed software fix for review after his agency raised additional questions.
“Once we have addressed the information requests from the FAA, we will be ready to schedule a certification test flight and submit final certification documentation,” Boeing said in a statement.
Investigators have focused on the MAX’s anti-stall Maneuvering Characteristics Augmentation System in inquiries into the two deadly crashes.
Boeing last week said the MCAS update was ready for the certification process, and US airlines were hoping the planes could be back in the skies in time for part of the summer travel season.
But Elwell on Thursday said the process could take one month, two months or longer.
“It is all determined by what we find in our analysis of the application,” he said on CNBC.
Once Boeing has submitted all documentation, the FAA will conduct a test flight and detailed analysis to evaluate the safety of the software.
Richard Aboulafia, an aviation analyst at Teal Group, said Boeing wants to avoid having to repeat the process.
“There’s a lot at stake in terms of the first impression by the world’s regulators,” he told AFP.
US air carriers that operate the 737 MAX, including American Airlines, Southwest and United, have said they hope to have the planes flying again by mid-August at the latest.
The FAA’s reputation has taken a beating since the March crash, and faced accusations of an overly cozy relationship with the aviation giant. Other aviation authorities now appear less likely to follow the US agency.
Michel Merluzeau of Air Insight Research, said American officials could end the 737 MAX’s grounding toward the end of summer, with authorities in other countries following suit “several months” later.
“We’re headed for a return to service that could drag on in time,” he said.
Elwell said regulators also have yet to decide on changes to pilot training once the adjustments have been approved.
The United States has differed with a number of countries on this issue, including Canada. Washington believes training on computers or tablets is sufficient for seasoned pilots but Ottawa wants to require training on flight simulators.
Transport Canada said it had “full confidence” in the FAA and its processes, but did not rule out the possibility that pilots of 737 MAX jets would be required to receive simulator training.
Nicholas Robinson, director-general of civil aviation, told Canadian media the training was a “possible option” but added it was too early to say if it would be mandatory.
The European Aviation Safety Agency, Canada and Brazil are among countries saying they will conduct their own evaluations of the MCAS fix.
What China, the first country to ground the 737 MAX, will do is also an unknown given the flare-up in trade frictions with the United States.
About five dozen representatives from 33 countries accepted the FAA’s invitation to attend the regulators’ conference in Texas.
Elwell said the closed-door meeting involved “frank questions and a frank discussion,” adding that his counterparts wanted “clarifications” on US procedures.
Regaining public trust will take time, according to opinion polls conducted by Southwest showing that many passengers are not yet ready to get back aboard a 737 MAX jet.
And pilots also have qualms.
“Before the Boeing MAX’s return to service, we need answers and transparency,” the European Cockpit Association said Thursday in a statement.
The organization, which represents 38,000 pilots from 36 countries, said it was “deeply disturbing” that the FAA and Boeing were considering a return to service while not disclosing “the many challenging questions prompted by the MAX design philosophy.”
Beyond Boeing’s reputation, the 737 MAX crisis comes at a major financial cost, given that the plane represented 80 percent of the company’s order backlog as of the end of last month.
The company, which has suspended deliveries, is only paid at the moment of delivery and will have to indemnify air carriers for losses.