One of the most challenging targets set in Saudi Arabia’s Vision 2030 is increasing the number of citizens owning their own homes to 60 per cent by 2020. At the launch of Vision 2030 in 2016, 47 per cent of Saudi nationals owned their own homes.
The challenge, for which the kingdom’s Housing Ministry is ultimately responsible, is multi-faceted. It involves increasing the supply by building new homes, broadening the demand by making the housing market accessible to more citizens, and ensuring there is sufficient financing available.
To help provide liquidity to the market, Riyadh established the Saudi Real Estate Refinance Company (SRC) in 2017. It is wholly owned by the Public Investment Fund (PIF) and licensed to operate in the secondary real estate market by the Saudi Arabian Monetary Authority (Sama).
SRC's main role includes offering lenders funding to provide liquidity or capital relief, enabling growth in the home finance sector to increase home ownership rates among Saudi citizens. SRC then aggregates and package portfolios of financing into mortgage-backed securities to sell to domestic and international investors.
“The creation of the company was predicated on the need to create a catalyst that would organise and push the dynamic and growth of the mortgage market in the kingdom by being an intermediary between originators on one hand and capital markets on the other,” says CEO of SRC, Fabrice Susini.
Assets and liabilities
Since its creation, SRC has been developing both the assets and liabilities on its balance sheet. For assets, it is creating products for mortgage lenders or originators in the kingdom.
“We have developed a series of products we wanted to offer to originators so we worked and articulated our product offering of a portfolio purchase, or portfolio acquisitions. The idea is to provide originators with the means and resources to sell down and offload mortgages they have originated so they can get access to additional liquidity and churn their portfolio and keep originating,” says Susini.
This has included developing products that were absent in the Saudi market such as long-term, fixed-rate offerings.
“We have started to sign agreements and partnerships with full mortgage finance companies, three or four banks, and have started to deploy our balance sheet,” says Susini.
The other axis that SRC has been working on is its liabilities. “For the liability side of our balance sheet, we have a strong support from shareholder PIF, but we need to look at how we diversify our funding sources, first, and second, tap different sources to grow the size of our liabilities so we can’t rely just on equity,” says Susini.
The company has embarked on a SR11bn ($2.9bn) sukuk programme, and in mid-March it successfully completed sukuk issuances in multiple tenors and under four series.
With the issuance, SRC became the first non-sovereign issuer in Saudi Arabia to issue a Saudi-riyal denominated fixed-rate instrument across several tenors (5, 7 and 10 years), establishing itself as a key sponsor, alongside the government, in developing the fixed-rate issuance curve in Saudi Arabia.
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