SRC expects real estate refinance to hit SAR 27 bln by year-end

Majeed Abduljabbar, Chief Business and Markets Officer at SRC

Majeed Abduljabbar, Chief Business and Markets Officer at Saudi Real Estate Refinance Co. (SRC), expects total real estate refinance to reach SAR 27 billion by the end of this year, which is reflective of significant growth in the Kingdom’s secondary real estate financing market.

SRC plans to acquire a stake in the residential real estate financing portfolios in Saudi Arabia, Abduljabbar told Argaam. This move, which mainly aims to develop a secondary real estate financing market, will support liquidity needs in the primary market.

Real estate finance in Saudi Arabia is witnessing high demand with fixed, low interest rates. Therefore, financiers in the primary market need innovative solutions to raise the return on assets, through efficient capital management and recycling, so as to serve a larger number of citizens looking forward to owning homes.

Abduljabbar also commented on the financing business model in the sector, and the public sector’s portfolios. Here’s the full interview with Abduljabbar:

Q: What is the objective of expanding SRC partnerships to include government entities instead of being limited to banks and financing companies?

A: The company was established in line with Vision 2030, which aims to achieve economic diversity and prosperity in the Kingdom. SRC contributes effectively to achieving the Sakani program goals that aim to raise the housing ownership among Saudi families to 70% by 2030, through offering innovative tools and solutions for home ownership at affordable prices. This is attained through cooperation with all real estate financers in the market, whether banks, financing companies or government real estate financing entities.

Further, the latest agreements aim to provide long-term liquidity for the local real estate financing market to enable risk management and fulfill capital requirements and boost the sector's growth and stability.

In light of the effective contribution by banks, financing companies, as well as specialized government entities, the secondary real estate financing market will be more mature and deeper, which will reflect positively on the citizens who wish to own homes in terms of lower cost and the availability of multiple financing options and solutions.

Q: Why did real estate financing shift from “originate to hold” to “originate to sell”?

A: Real estate finance in Saudi Arabia is witnessing high demand with fixed, low interest rates. Therefore, financiers in the primary market need innovative solutions to raise the return on assets, through efficient capital management and recycling, so as to serve a larger number of citizens looking forward to owning homes.

The “originate to sell” business model allows financing firms to reinvest capital more than once and increase their return on assets (ROA) backed by the portfolio service fees in consideration of selling.

SRC’s expansion in refinance transactions reflects a qualitative and well-studied shift in real estate finance through converting to the “originate to sell” business model.

It also aims to enhance liquidity and financial sustainability in the real estate finance market, as well as the risk management of residential property portfolios.

Q: How many portfolios were purchased from government entities? And what is the total value?

A: SRC signed a refinancing partnership agreement with the Real Estate Development Fund (REDF) to refinance a real estate portfolio worth SAR 10 billion – SRC’s biggest refinance deal concluded with a government entity.

In 2020, the company entered into a refinance agreement worth SAR 3 billion with the Public Pension Agency (PPA), which was the largest refinance deal then. This underscores SRC’s partnerships with government entities to offer citizens multiple finance options and boost the home ownership rate.

Q: What is the expected value of SRC’s financing portfolio by the end of 2021?

A: We expect the total real estate refinance to reach SAR 27 billion by the end of this year, which is reflective of significant growth in the Kingdom’s secondary real estate financing market.