RIYADH, 30 December 2007 — Saudi Arabia has approved the launch of Saudi Home Loans Co. (SHLC) to tap into a market where four out of five Saudis do not own a home, state news agency SPA said yesterday.
The Trade and Industry Ministry approved the launch of SHLC which will provide loans compliant with Islamic law, SPA said. The firm will have a capital of 2 billion riyals ($533 million).
Each of Arab National Bank and private housing finance firm Kingdom Installment Co. hold 40 percent in SHLC, according to Arab National Bank. Property developer Dar Al-Arkan holds a 15 percent stake in SHLC and the International Finance Corporation (IFC) has the remaining 5 percent.
Only 22 percent of Saudis own their houses, SHLC’s Managing Director Abdullatif Al-Shelash said earlier this month.
“The Kingdom will need some 4.5 million new housing units within the next five years to accommodate its growing population,” Al-Shelash said in remarks published by Arabian Business magazine.
SHL will cater mainly for the middle and the poor segments of the Saudi population, he added.
Fuelled by record oil receipts, the kingdom has witnessed a boom in construction and infrastructure projects but realtors say the deficit in housing projects especially for low-income households has not been reduced.
They blame the absence of a mortgage law, which has been in the works for years now, as the main obstacle to higher investment in housing projects for the poor.
The Justice Ministry said earlier this year that the mortgage law would soon be issued.
IFC, the private sector arm of the World Bank Group, signed last April an agreement with the Arab National Bank, Dar Al-Arkan Real Estate Development Company, and the Kingdom Installment Company to create the first independent, specialized, Shariah-compliant housing finance institution in Saudi Arabia.
SHLC will promote home ownership by making housing more available and affordable for the country’s middle- and lower-income population, which is underserved in housing finance.
IFC will provide an equity investment of up to SR100 million ($27 million equivalent) for a 5 percent stake in SHLC. IFC has also introduced the Housing Development Finance Corporation (HDFC), India’s leading housing finance provider, to the sponsors to train their management teams in credit risk management, operations, and management information systems. The project is a key element in IFC’s long-standing effort to help develop a viable housing finance market in Saudi Arabia.
Youssef Al-Shelash, chairman of Kingdom Installment Company, said during the signing that “this dynamic alliance with IFC will allow us to expand our financing program aggressively, as we offer consumers greater choices and flexibility in their housing finance needs. For the first time, Saudi consumers will be able to find the combined skills and expertise of a leading retail bank and a specialist, real estate finance company to structure and make affordable Shariah-compliant financing solutions for purchasing residential properties.”
Dr. Robert Eid, managing director and CEO of Arab National Bank, said “this project is an important part of our strategy to develop housing finance as a core growth sector in the Saudi economy and to make home ownership a reality for more Saudi families. We will also continue to leverage our strong experience and excellent reputation in the marketplace to develop innovative, Shariah-compliant products and services for home buyers. IFC will share with us its expertise in housing finance and structured finance in emerging markets.”
Jyrki Koskelo, IFC director for Global Financial Markets, said “we are delighted to work with the founding sponsors of the Saudi Home Loans Company. Our investment provides a strong driver for developing Saudi Arabia and the region’s nascent housing finance market. Making long-term funding more available for housing finance will better serve the lower-income segments of the market and increase their chances to own homes.”