CEO of SRC says demand for mortgage financing 'strong', refinancing market size still small

Fabrice Susini, CEO of Saudi Real Estate Refinance Co. (SRC)

Fabrice Susini, CEO of Saudi Real Estate Refinance Co. (SRC), said that there is strong demand for mortgage financing, which rose 30% in the second quarter of 2022, despite its decline in the previous quarter. 

In an interview with Argaam, on the sidelines of Euromoney Saudi Arabia 2022 conference in Riyadh, Susini added that the size of the real estate refinancing market is still small, indicating that SRC dominates a large percentage, with transactions of about SAR 18 billion. 

As for the size of the Kingdom's mortgage market, the CEO said the market has witnessed remarkable growth in the past five years, reaching about SAR 640 billion this year, compared to SAR 200 billion in 2017. He added that the number of mortgage contracts exceeds 500,000, compared to 120,000. 

SRC is working on enabling the mortgage market to continue providing real estate loans for citizens through refinancing and sukuk issuances to add liquidity to the market. 

He stated that SRC issued local sukuk worth SAR 11 billion to expand its programs and business, in addition to developing the Kingdom’s capital market through cooperation with the Ministry of Finance and the Capital Market Authority to make the market more attractive to local and foreign investors. 

Susini also revealed that SRC is working on the issuance of international sukuk by 2023, adding that the company continues to issue local sukuk, but it will raise liquidity from international markets. 

SRC works with commercial banks, real estate finance companies, unconventional financial institutions such as the Real Estate Development Fund (REDF). About two-thirds of the company's portfolio is with unconventional financial institutions, while one third to half of SRC's portfolio is refinanced with banks and real estate financing companies. 

Susini expects the total value of the mortgage portfolio to range between SAR 22-24 billion by the end of this year. This will mark a relatively strong increase compared to the end of 2021, which was a significant increase compared to 2020. 

SRC may not witness the same growth rates in the coming period, but is expected to be among the major owners of mortgages, said the CEO, adding that the company's goal is to contribute to the housing program. 

He further explained that the interest rate hike has a limited impact, given the long-term fixed interest rate with the support of partners in REDF and other entities in the housing programs, as one of the priorities for refinancing operations through matching asset financing. 

The impact of higher interest rates may lead to dampen the mortgage market because it has become more expensive, and the purpose of interest rate hike is to reduce demand, Susini stated.