Saudi Arabia plans $6bn surge in mortgage refinancing

Saudi Arabia’s first mortgage refinancing firm aims to raise its holdings of home-loan portfolios by 10 times this year, as a government push to boost home ownership spurs lending.

The Saudi Real Estate Refinance Company – the state-owned equivalent of Fannie Mae and Freddie Mac in the US – plans to buy more than 23bn riyals ($6.1bn) of mortgage portfolios from banks in 2020, Housing Minister Majed Al-Hogail said in an interview with Bloomberg TV in Riyadh.

That’s a sharp jump from the 2.25bn riyals it held at the end of last year.

The target reflects “huge growth” in mortgage lending as officials try to raise home ownership from 62 per cent to 70 per cent by 2030, a goal of Crown Prince Mohammed bin Salman’s economic overhaul plan. Housing is a politically sensitive issue in Saudi Arabia, where some citizens complain about the costs of renting or being unable to afford a family home.

The government has taken a slew of measures to increase home construction and lending as it works to lift one of the world’s lowest mortgage penetration rates. For years, the absence of refinancing firms limited the ability of banks to expand their mortgage books amid regulatory limits on loans to any one sector. The current refinancing firm was established in 2017.

Ministers have amended central bank rules and given incentives to make it easier for Saudi home-buyers to access financing.

The value of outstanding mortgages has jumped to 482bn riyals – a 66 per cent increase since 2017 – with an official target of 500bn by end-2020.

Al-Hogail dismissed concerns that the boom could be risky.

The kingdom’s mortgage market “is considered one of the lowest when it comes to delinquency – 0.6 per cent,” he said. While that rate will increase, Saudis are “committed to their loans; they’re very serious when it comes to liability.”

The government’s working to increase housing supply, according to Al-Hogail, with 105,000 units under construction and another 100,000 coming soon.

The kingdom is working with local developers as well as others from the US, China, Russia and Egypt, he said. “We are sure that supply is coming to the market.”