JEDDAH, 9 April 2007 — A coalition of four firms — Dar Al-Arkan, the Kingdom Installment Co., the Arab National Bank and the International Finance Corporation (IFC) — has formed a closed joint stock company with a capital of SR2 billion to finance housing projects.
The four signed an agreement on April 3 after receiving preliminary approval from the Saudi Arabian Monetary Agency.
The signatories were Abdullatif Al-Shelash, managing director of Dar Al-Arkan, Jamal Al-Jashi, corporate finance manager at ANB, Walid Al-Murshid, business manager of IFC, and Hadlool ibn Saleh Al-Hadlool, general manager of Kingdom Installment Company (KIC).
“The new company is the result of efforts made by Dar Al-Arkan during the past nine years in order to help Saudi youth purchase suitable houses by providing them with Shariah-compliant financial tools,” Shelash said.
“People will be able to buy houses on an installment basis by paying amounts equal to monthly house rents,” he added.
Shelash described the formation of the company as a qualitative development in the Kingdom’s housing sector. “This will also encourage real estate developers to establish more such firms,” he added.
Dr. Robert Eid, managing director and CEO of ANB, emphasized the significance of the new company, given the growing demand for housing all over the Kingdom as a result of increasing population and economic activities.
“This alliance is an important part of ANB’s strategy to develop housing finance as a core growth sector for the bank and to develop and provide Shariah-compliant financial solutions to the bank’s clients in relation to home finance,” Eid said.
Al-Murshid, who is also in charge of IFC’s regional investment for the Middle East and North Africa, said the participation of the corporation (an affiliate of the World Bank) in the agreement was aimed at promoting housing finance in developing markets to tackle housing problems there.
He added that 80 percent of the Kingdom’s population is unable to purchase their own houses and so he expects the Saudi government would soon issue a real estate mortgage law to meet market needs.
Al-Hadlool emphasized the new company’s viability. He said KIC is already well established as the largest private housing finance company in Saudi Arabia and as a pioneer of Shariah-compliant housing finance in the Kingdom, having financed more than 3,000 home purchases since its establishment as an offshoot of Dar Al-Arkan, the Kingdom’s premier residential real estate developer.
Al- Hadlool said Saudis have been found punctual in paying their installment dues. The new company would provide housing loans for up to 25 years at a comparatively lesser cost to purchase homes from any developer as long as they meet the technical conditions.
The participating companies had signed a memorandum of understanding in July last year to establish the new firm. IFC and Housing Development Finance Corporation of India (HDFC) had previously concluded agreements with KIC during the Custodian of the Two Holy Mosques King Abdullah’s visit to New Delhi in January last year.
A recently completed research paper by Ernst &Young, Bahrain, noted that “Saudi Arabia’s real estate sector is witnessing unprecedented growth and consequently complimentary sectors such as the home finance market are likewise witnessing rapid growth rates.”
As a result, the launch of the new company would further entrench growth and stability in the vital sector of the Saudi economy.
Notwithstanding this rapid growth potential, the current level of borrowings in Saudi Arabia is relatively low with mortgage housing finance representing only two percent of the gross domestic product as opposed to 17 percent in Malaysia, 50 percent in the US, and 72 percent in the UK.
“Our alliance with the new company represents a significant milestone in the evolution of the residential real estate sector in the Kingdom,” Eid said.
“For the first time, Saudi consumers will be able to look to the collective skills and expertise of a leading retail bank and a specialist real estate finance company to structure and make affordable Shariah-compliant funding solutions for residential properties constructed by Dar Al-Arkan or any other reputable developer,” he added.
The Arab National Bank is a leading Saudi Arabian bank with a distinguished track record in the consumer banking sector. Standard & Poor’s Ratings Services recently upgraded the bank’s long-term counter-party credit rating to “A”.
