INTERVIEW: Real estate exec Fabrice Susini confident Saudi Arabia’s coronavirus-hit mortgage demand will return

INTERVIEW: Real estate exec Fabrice Susini confident Saudi Arabia’s coronavirus-hit mortgage demand will return
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Updated 31 May 2020

INTERVIEW: Real estate exec Fabrice Susini confident Saudi Arabia’s coronavirus-hit mortgage demand will return

INTERVIEW: Real estate exec Fabrice Susini confident Saudi Arabia’s coronavirus-hit mortgage demand will return
  • "There seems little prospect of a cascade of mortgage defaults as long as the current policy of government support continues," Saudi Real Estate Refinance Company CEO Fabrice Susini tells Arab News

What a difference a pandemic makes. At the turn of 2020, Fabrice Susini, CEO of Saudi Real Estate Refinance Company (SRC), could look back on two years of significant progress toward the provision of affordable home ownership for the Kingdom’s aspirational young population.

Increased property ownership was one of the main aims of the plan to diversify the Saudi economy away from oil dependency, setting a target of 70 percent home ownership by 2030.

It was all going to plan. New mortgage issuance had been “staggering,” Susini said, and SRC had reached its target of facilitating 60 percent home ownership with months to spare.

“It was a very positive story,” he said, allowing him to work on the next phase of Saudi Arabia’s move toward being a home-owning economy — buying more mortgage portfolios from banks and other mortgage originators, injecting more liquidity into the housing market via domestic and international sukuk issuance, and offering new long-term fixed-rate mortgages to potential and actual home owners.

The economic lockdown that took increasing effect from March has changed the figures on which those plans were based. New mortgage applications, which has been running between SR20 million ($5.3 million) to SR50 million per week, dropped into single-digit millions as potential buyers were forced to stay at home rather than go viewing properties and took stock of their spending plans in light of the economic downturn that followed the pandemic outbreak.

“We expect to report a sharp drop for April and May. I would be surprised if the numbers remain the same,” Susini said. “But the fundamentals remain the same. It is still an underserved market, compared with the demands and needs of the young, dynamic population aspiring to home ownership. The process may be slowed by a couple of months, but the demographic is still there. There will be a slowdown but I’m sure a catch-up is coming and the forward movement will resume.”

One reason for his optimism is the action taken by the financial authorities to support the economy in its hour of need, especially the stimulus packages unveiled by the Saudi Arabian Monetary Authority (SAMA) and the Finance Ministry.

“There has been a lot of support coming through for small to medium businesses and private companies, and that will balance and smooth out the process. I don’t see a big hit coming,” he said.

Effective monitoring and control of SAMA liquidity injections would ensure they reached the SME and private sector organizations they are mainly intended to help, he added.

“I’d be very surprised if any significant proportion was not properly channeled to the private sector and SMEs,” he said.


BIO

BORN: Rome, 1964

EDUCATION: 

  • Law degree, Paris X Nanterre University, France
  • Banking and finance degree, Sciences Po, Paris
  • Master’s degree, finance, Dauphine University, Paris
  • MBA, London Business School

CAREER

  • Relationship manager, Societe Generale
  • Analyst, Bayerische Landesbank
  • Global head of securitization, BNP
  • CEO, Saudi Real Estate Refinance Company

The mortgage industry in Saudi Arabia enjoys significant subsidies from the government for its products, and while some of these have been changed in recent week, reducing subsidies to mortgages for military and some civilian personnel, he does not see this as the beginning of a trend to remove subsidies for mortgages in the broader scope of SRC’s business.

“There is no danger to mortgage subsidies that I am aware of. The budget has been carried out, the resources are there. But of course we want to make sure that every riyal of subsidy is used to its most effective extent,” Susini said.

“When we saw the situation was becoming more challenging, the SAMA package was a great help by injecting liquidity into the financial system, but we also wanted to be more proactive ourselves in the relationship we have with our borrowers and our partners. We didn’t just want to wait until people were actually in difficulties before we acted,” he added.

The result was the “forbearance” plan for borrowers, by which SRC asked its mortgage partners to offer a three-month mortgage holiday to those who felt the need, and many took up the offer. “A big majority has gone for it. We see ourselves as a ‘citizen’ company and we do not just want to rely on the authorities. We asked ourselves what we can do in terms of citizenship and public policy initiatives,” Susini said.

There seems little prospect of a cascade of mortgage defaults as long as the current policy of government support continues, and SRC and mortgage originators persist with the policy of showing patience and understanding in difficult economic circumstances.

Nonetheless, prospective home owners are facing big challenges. Not only has the lockdown made the market mechanics of home-buying more difficult, with viewings almost impossible in the light of curfews and travel restrictions, but there is also the question of whether people will hesitate over such a life-changing decision. Will they want to buy a house or apartment while the pandemic continues to rage?

Susini thinks customers will learn to prioritize their financial decisions more carefully. “You might defer the purchase of a new car, but still want to buy a home. You would direct your choice toward those things you regard as more important. Home ownership is probably regarded as more essential,” he said.

The appetite of Saudi citizens for house purchase in the new circumstances will be better judged when SAMA and other financial bodies publish official figures in the near future, he said.

With regard to the overall health of the real estate market, Susini said that he has not seen a significant fall in property prices, but underlines the fact that SRC caters mainly for the affordable segment of the market, where big falls in value are less likely. He noted that apartments have been holding their value “quite well” in comparison with bigger units like townhouses and villas.

In an era when global interest rates are falling toward zero in many parts of the world, there could be an incentive for customers to go for the long-term fixed-rate deals SRC is offering.

“We’re seeing the need for more awareness of the benefits of fixed rates. Borrowers can grasp the benefit of remortgaging at rates that are significantly lower now than they were before. It is a choice for the borrower really. They can either own their home more quickly than before, or maintain their payments on more sensible terms. It can be beneficial for them whether rates are subsidized or not,” he said.

SRC reduced its lending rates for long-term fixed mortgages last month, is first cut this year following two rate reductions in 2019. Borrowers could now take advantage of a 5 percent rate on a 25-year mortgage, Susini said.

SRC is also working hard on the digital space, with online facilitators becoming more crucial to home purchase. The company is in the early stages of a study on fintech and digital mortgage origination, and some initiative could be forthcoming by the summer, he said.

“If you can talk of a silver lining from the current situation, it is that it is accelerating the digitization of financial processes. The payment processes are already quite well developed, but the sale of processes presents more of a challenge. The health ministry has organized some innovative processes around the digital market place, and the justice ministry has done good work on the digital origination of contracts.”

The strategy of including mortgage originators in the SRC set-up will continue, and Susini is holding talks with financial and corporate firms to bring more products under its portfolio. 

SRC is owned by the Public Investment Fund, the Kingdom’s $325 billion sovereign wealth fund, so it has access to finance at the highest level. But under Susini’s stewardship there has also been a willingness to raise money in local markets via domestic sukuk issues. Two have already been launched, and a third is lined up to take place in the summer.

After that, the company will be work on an international bond offering toward the end of the year, though he declined to say how much would be raised.

“We want to ensure we can continue to finance mortgages, to have sufficient tools and channels so that no bank or finance company is stopped from offering mortgages because of issues to do with capital ratios of liquidity,” Susini said.

He viewed recent downgrades by ratings agencies of banks’ creditworthiness or prospects as a “gray cloud” over liquidity.

“We want to be ready so that primary originators of mortgages have all the tools necessary to keep operating regardless of the problems they might face,” he added.


Tencent ordered to end exclusive music contracts

Tencent ordered to end exclusive music contracts
Updated 41 min 36 sec ago

Tencent ordered to end exclusive music contracts

Tencent ordered to end exclusive music contracts
  • Chinese regulators step up enforcement of anti-monopoly laws

BEIJING: Internet giant Tencent was ordered by regulators to end exclusive contracts with music copyright holders, adding to increased enforcement of anti-monopoly and other rules as Beijing tightens control over online industries.

Tencent controls more than 80 percent of “exclusive music library resources” following its 2016 acquisition of China Music Group, the State Administration for Market Regulation said on Saturday. It said that gives Tencent the ability to get better terms than competitors receive or to limit the ability of rivals to enter the market.

Tencent Holdings Ltd., best known abroad for its WeChat messaging service, has a sprawling business empire that includes games, music and video. It is among the world’s 10 most valuable publicly traded companies, with a stock market value of $680 billion.

In order to “restore market competition,” Tencent must end exclusive music copyright contracts within 30 days, the market regulator said in a statement. The company is barred from requiring providers to give better terms than competitors receive.

Tencent promised on its social media account to “conscientiously abide by the decision.”

Regulators are stepping up enforcement of anti-monopoly, data security, financial and other rules against Tencent, e-commerce giant Alibaba Group and other companies that dominate entertainment, retail and other industries.

The enforcement has hurt the stock market value of some companies. Shares in ride-hailing service Didi Global Inc., which made its US stock market debut last month, are down 21 percent after regulators announced a probe of its “network security” and ordered the company to overhaul handling of customer data.

Regulators have publicly warned major companies not to use their market dominance to keep out new competitors.

Tencent was blocked by regulators on July 10 from combining its game platforms Douyu and Huya on the grounds that might reduce competition.

On Wednesday, the Chinese internet regulator reprimanded Tencent, Alibaba, microblog platform Sina Weibo and e-commerce service Xiaohongshu for allowing sexually suggestive stickers or short videos of children to be distributed on their services.


Stronger, faster recovery forecast for global insurance sector

Stronger, faster recovery forecast for global insurance sector
Updated 45 min 51 sec ago

Stronger, faster recovery forecast for global insurance sector

Stronger, faster recovery forecast for global insurance sector
  • Global commercial insurance prices rose 18 percent in the first quarter of 2021 from a year earlier

NEW YORK: The global insurance industry is poised to recover more quickly and forcefully from the coronavirus disease (COVID-19) pandemic than it did after the 2008 financial crisis, despite such obstacles as low interest rates and inflation risk, insurer Swiss Re AG’s chief Americas economist said on Friday.

Unlike the prior crisis, the pandemic did not weaken insurers' overall capitalization or financial strength, which allows companies to write new coverage and increase revenue, economist Thomas Holzheu told Reuters.

Writing new policies was more difficult in 2009 and 2010 when insurers were reeling from capital losses, slow economic growth and depleted incomes of companies and individuals.

In contrast, businesses and individuals now have more money from government stimulus and support programs, and are more conscious of the need to buy protection against risks, he added.

“We see a much stronger, more resilient demand for insurance — last year, this year, and we expect for the next few years — compared with the financial crisis, when the industry was a part of the financial markets issues,” he said.

Swiss Re’s view aligns with other bullish signs. Global commercial insurance prices, for example, rose 18 percent in the first quarter of 2021 from a year earlier, on average, insurance broker Marsh McLennan Cos Inc. said in May. Rates have risen since late 2017.

Swiss Re said it expects annual growth for all premiums, not just commercial, to reach 3.3 percent this year and 3.9 percent in 2022, after falling just 1.3 percent last year. That compares with a 3.7 percent decline in 2008, during the financial crisis, and a slower rebound of 0.5 percent and 2.1 percent in 2009 and 2010, respectively.

Sector bellwether Travelers Companies Inc. on Tuesday beat second-quarter Wall Street estimates by more than $1 a share.

Other large US insurers are due to report results over the next two weeks.


G20 split on climate goals as China, India push back on coal phaseout

G20 split on climate goals as China, India push back on coal phaseout
Updated 24 July 2021

G20 split on climate goals as China, India push back on coal phaseout

G20 split on climate goals as China, India push back on coal phaseout
  • Coal phaseout 2025 deadline too soon for some nations
  • Some wanted more aggressive global warming target than Paris 2015

NAPLES: Energy and environment ministers from the Group of 20 rich nations have failed to agree on the wording of key climate change commitments in their final communique after China and India refused to give way on two key points.

One of these was phasing out coal power, which most countries wanted to achieve by 2025 but some said would be impossible for them.

The other concerned the wording surrounding a 1.5-2 degree Celsius limit on global temperature increases that was set by the 2015 Paris Agreement.

Average global temperatures have already risen by more than 1 degree compared to the pre-industrial baseline used by scientists and are on track to exceed the 1.5-2 degree ceiling.

“Some countries wanted to go faster than what was agreed in Paris and to aim to cap temperatures at 1.5 degrees within a decade, but others, with more carbon-based economies, said let’s just stick to what was agreed in Paris,” said Italy’s Ecological Transition Minister Roberto Cingolani.

The G20 meeting was seen as a decisive step ahead of United Nations climate talks, known as COP 26, which take place in 100 days’ time in Glasgow in November.

Italy holds the rotating presidency of the G20, and Cingolani, as chairman of the two-day gathering, said negotiations with China, Russia and India had proved especially tough.

The G20 nations, which includes Saudi Arabia, collectively account for some 80 percent of the world’s gross domestic product and some 60 percent of the planet’s population.

At the Naples talks, the United States, the European Union, Japan and Canada made clear they “firmly intend to go faster than the Paris agreement by the (end of) the decade, and below 1.5 degrees,” Cingolani said.

Cingolani said the G20 had made no new financial commitments, but added that Italy would increase its own climate financing for underdeveloped countries.

The urgency of climate action has been brought home this month by deadly floods in Europe, fires in the United States and sweltering temperatures in Siberia, but countries remain at odds over how to pay for costly policies to reduce global warming.

Despite the two points of disagreement, Cingolani said the G20 had put together a 58-point communique and that all the countries agreed that decarbonization was a necessary goal.

All G20 members agreed to at least meet the Paris goals.

US President Joe Biden’s climate envoy, John Kerry, participated in the Naples talks. Earlier in the week, Kerry called on China to join the United States in urgently cutting greenhouse gases.

The majority of the countries at the conference also backed a goal of moving faster to reduce the use of coal, the Italian minister said, without naming all of the nations.

But during the talks, China, as well as Russia and India, were “more prudent” in embracing more ambitious goals, Cingolani said.

“For those countries, it means putting into question an economic model,” he said.

Exactly what commitment nations, including those which heavily pollute, are willing to make toward fighting climate change will be also on display at UN climate conference taking place in Scotland in November.

The national leaders of the G20 countries will have the opportunity to thrash out the sticking points that emerged in Naples when they meet in Rome at the end of October.


Food commodities in Egypt ‘will not be affected by increase in fuel prices’

Food commodities in Egypt ‘will not be affected by increase in fuel prices’
Updated 24 July 2021

Food commodities in Egypt ‘will not be affected by increase in fuel prices’

Food commodities in Egypt ‘will not be affected by increase in fuel prices’
  • Head of Consumer Protection Authority warns that its inspectors would deal with those who raised any prices

CAIRO: The president of the Cairo Chamber of Commerce, Ibrahim Al-Arabi, said on Saturday that the increase in fuel prices will not affect the price of bread and other food commodities, nor the flow of goods.
Al-Arabi said the decision of the Fuel Automatic Pricing Committee, which is concerned with following up and implementing the mechanisms of applying automatic pricing for petroleum products every quarter, recommended adjusting the selling price of the three types of gasoline products, starting Friday morning, raising prices by 25 piasters ($0.016), with the price of a liter of 80 octane gasoline rising to 6.75 Egyptian pounds ($0.43). The price of 92 octane gasoline is now 8 pounds per liter and high-quality 95 octane gasoline is 9 pounds.
The committee’s decision was based on the extreme fluctuation in global prices, mainly because of the economic effects of the coronavirus disease pandemic and production cuts.
Ayman Hossam El-Din, head of the Consumer Protection Authority, warned that its inspectors would deal with those who raised any prices, whether for foodstuffs or transportation costs.


Lebanon signs deal to sell Iraqi fuel in move to ease crisis

Lebanon signs deal to sell Iraqi fuel in move to ease crisis
Updated 24 July 2021

Lebanon signs deal to sell Iraqi fuel in move to ease crisis

Lebanon signs deal to sell Iraqi fuel in move to ease crisis
  • The swap is valued at between $300-400 million
  • Lebanon to offer Iraq unspecified services in exchange

BEIRUT: Lebanon signed a deal Saturday to broker Iraqi fuel sales in hopes of alleviating a crippling financial and energy crisis in the small Mediterranean country, Lebanese and Iraqi media reported.
The deal allows Beirut to resell 1 million tons of heavy fuel oil from Iraq — fuel that Lebanon cannot use in its own power plants — to companies who would then provide useable fuel to Lebanon over the next year.
Lebanon would offer Iraq services in exchange, Energy Minister Raymond GHajjar said, without offering details. Local media said Iraq would benefit from Lebanese health services and agriculture consultancy.
The swap, which GHajjar estimates is valued at between $300-400 million, could offer a brief respite to Lebanon’s worsening power cuts and bring funds to its cash-strapped government. But a structural power solution, in a sector steeped in corruption and political interference, is far from sight.
Blackouts have been a fixture in Lebanon since the end of its 15-year civil war in 1990, and the small country relies on imported fuel. But the problem has intensified as the government grapples with unprecedented financial problems, and considers lifting fuel subsidies.
“The Iraqi state agreed to open an account in Lebanon’s Central Bank in exchange for this fuel. This account is managed by the Iraqi Finance Ministry through which it buys services inside Lebanon... in Lebanese pounds,” GHajjar said. Then Lebanon resells the fuel in exchange for fuel it can use in its plants.
“We hope other Arab countries follow suit and give us this opportunity because it is really a golden opportunity for us,” GHajjar said at Beirut International Airport upon his return from Baghdad.
A statement from Iraq’s Prime Minister’s office said the 1 million barrels of fuel oil would be offered to Lebanon in exchange for services and products, although neither side immediately mentioned what these were.
Lebanon’s state electricity company has most recently been providing no more than four hours of power a day, leaving private generator operators as the main providers. Diesel supplies have dwindled, and long queues stretch outside gas stations each day.
Government officials have also complained of widespread smuggling to neighboring Syria, which is also facing an economic crisis following a decade of war.
Lebanon defaulted on its foreign debt last year and struggled to pay suppliers. The Central Bank has been limiting credit to purchases of basic supplies, including fuel and medicine.
The energy crisis has reached unprecedented levels in Lebanon. Generator operators warned Friday they would have to turn off their engines as diesel shortages have worsened and prices on the black market have reached exorbitant levels.
Hospitals are rationing their consumption, shutting off air conditioning in waiting areas, while bakeries in some parts of Lebanon have stopped their ovens altogether. Supermarkets have warned that the power shortages threaten their merchandise and endanger food safety.
The UN children’s agency, UNICEF, has warned that most water pumping will gradually cease across the country in the next four to six weeks, putting more than four million people, including one million refugees, in immediate risk of losing access to safe water.