The Business Year

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Though the mortgage business has fared fairly well in the last several years, the industry is aware of looming housing needs and funding requirements and is taking the necessary steps.

Fabrice Susini

CEO, Saudi Real Estate Refinance Company (SRC)

SRC is one element in a more global ecosystem put in place under the umbrella of the Ministry of Housing. The whole plan of developing home ownership relies on three pillars: supply, broadening the scope of who has access to home ownership, and elements or products that make more homes affordable to more people. More has to be done to channel liquidity toward originators. Providing liquidity is where SRC comes into play. We are gaining traction because of a deal with Deutsche Gulf and Bidaya and are currently finalizing negotiations with another mortgage finance company. Our approach is to provide a global answer to what the mortgage finance companies and the banks need to do or help them originate more. We interact with the originators to expand the eligibility criteria; we promote standardization and transparency while we support the mortgage companies and banks and channel liquidity. It is nice to entice people to originate more loans and to grow the volume with a broader range of borrowers; however, at the end of the day we need also to make sure that we can bring funding to these originators, which is what SRC is all about. Our aim is to grow the Saudi market sustainably, which means we should offer more loans to a broader range of the population, with the right assessment, product, and coverage.

Suliman Azzabin

CEO, Deutsche Gulf Finance

There are subsidies in the mortgage market that push customers to go to banks or financing companies to take out mortgages instead of giving it to them directly. Ineligibility is a problem; some customers are ineligible due to low salaries or bad credit reports. Second, customers might already have financing. If they come for a mortgage, a bank may give them 60-65%; however, when they come to us, they are already in debt, with 30-40% owed. Thus, no matter what we are able to give, it does not satisfy the customer. The Real Estate Development Fund creates new products to fill this gap, though there is still a significant gap. The main problem is the price of the land; if the price of land was reduced, everyone would be able to own a house. A house today is worth around USD240,000 at the very cheapest, with the median closer to USD267,000. Since the economy took a slight hit in the past few months, feedstock and building material are now cheaper, so that is not where the problem lies. We currently have a product to meet these demands, which is called mortgage guarantee services. Normally, a customer with a monthly income below USD2,800 would be rejected by financers. Now, he would be accepted, and in case of default, the lender will be reimbursed 80%. The program mostly applies to ex-government employees, former military, and retirees, and we are still looking for a solution for the wider population.

Mazin Ahmed Al Ghunaim

CEO, Mazin Ahmed Al Ghunaim

Financing is one of the main pillars of our operations, and our partnership with SRC is a great new avenue to fund our business. Saudi Arabia currently has 420,000 beneficiaries, which requires nearly SAR300 billion in funds. This is a challenging task through the debt market, so the repackaging of financial services that SRC provides complements us in that respect. Their presence is crucial to the current ambition of increasing home ownership amongst Saudi nationals, and their innovative repackaging program of financing products will involve the private sector even more. Under the current agreement, they have provided us with USD270 million, more than half of which we have already dispersed. The idea is to further grow this relationship between Bidaya and SRC in order to ensure that we have a great understanding of financing lines for us. The Public Investment Fund (PIF) is our common shareholder, and there is complete synergy and understanding between us. The current ecosystem is evolving, and we have originators that are mortgage houses and banks. We also have end users, developers adding units, and SRC providing financing to the market. There is also SAMA and CMA, which are our regulators. And on top of everything, we have the government, including the Eskan program with 16 government entities. All those businesses will be regulated and practitioners will be professionalized, making it easier for people to own their homes.

Abdullah Turki Al Sudairy

CEO, Amlak International

While the future of the industry shows bright growth prospects, the challenges and opportunities are bigger than ever before. The shortage of long-term capital is widely seen as a chronic blockage in serving the burgeoning need for housing mortgages. In this context, the setup of SRC is very timely and highly applauded as it represents a major breakthrough in creating a sustainable mortgage industry. Following the launch of SRC, industry players are taking a fresh look at their business plans and expansion goals. These funding lines will release significant capital to actively expand our mortgage originations. With cost-efficient, long-term solutions, the mortgage industry is overcoming one of our chief apprehensions about liability management, and we are planning to enhance service platforms to seize upcoming growth. AMLAK recognizes unprecedented opportunities to provide cost-efficient mortgage solutions to a wider segment of society. We have been busy over last 12 months, launching new solutions to serve both unmet and emerging needs. We launched a down payment guaranteed program, a rate-subsidized product, a mortgage-guaranteed solution, and a program sponsored by the Ministry of Housing involving completed and under-construction units. AMLAK is in an advanced stage of launching a self-construction financing program, serving the largest supply source of housing. Overall, we are widening our product portfolio, shoring up business plans, bolstering internal capabilities and re-engineering operations for both market-led and reform-driven changes to demand and supply.

Yasser Abu Ateek

CEO, Dar Al Tamleek

When we started in 2008, the perception was that mortgages would become an important sector, even though it only represented 1% of GDP at the time. We worked hard in 2008 to get our bylaw prior to the regulation release. However, the 2008 global financial crisis was largely sparked by mortgages, and regulators became wary of the concept. This delayed the release of the mortgage law until July 2012. The financial crisis brought liquidity back to Saudi Arabia. At the time, it was safer to invest money in Saudi real estate than to deposit in US or European banks, which led to an increase in real estate prices up until 2015. These first years were golden days for the mortgage sector, until a 30% down payment became compulsory in 2014. Add to this the introduction of a land tax, and real estate became a less appealing investment. In 2015, the mortgage sector was around SAR8 billion, compared to over SAR25 billion in 2014. The tide turned again when the minimum down payment fell to 15%. The real estate sector has the potential to lead the economy again. The government aims to build 1.5 million homes through PPPs by 2022. I hope foreign investors take the lead to introduce large-scale development. The largest developers in Saudi Arabia in the last few years still only built 1,000 units at a time. We need to widen the scope to 10,000 or 20,000 units.



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