Saudi Real Estate Refinance plans international sukuk by 2020-end, says CEO

Fabrice Susini, CEO of Saudi Real Estate Refinance Co. (SRC), said that the size of the local mortgage market stood at nearly SAR 240 billion by the end of Q1 2020, expecting growth to reach SAR 800 million by 2028.

SRC has contributed to increasing the homeownership rates to 62% in 2020 from 47% in 2017, Susini told Argaam in an exclusive.

The real estate refinance company is planning a dollar denominated international sukuk issuance of up to $5 billion by the end of the year, he added.

Here’s the full interview with Fabrice Susini, SRC’s chief executive officer:

Q: What is the size of the Saudi mortgage market?

A: The size of the Saudi mortgage market stood at approximately SAR 240 billion as of Q1 2020. It is expected to maintain growth to SAR 800 billion by 2028.

Since commencement of operations, SRC has contributed to increasing the homeownership rates to 62% in 2020 from 47% in 2017 – overachieving this year’s target of 60%.

SRC’s top priority is to improve homeownership rates in the Kingdom to 70% by 2030.

Q: What was the total value of the mortgage portfolio purchased by SRC in 2019? And what about this year’s target?

A: SRC intervenes through purchasing portfolios of banks and companies to support mortgages origination. As of today, the company has deployed almost SAR 3 billion worth of portfolios, out of which SAR 2 billion has been sourced from partner banks and mortgage finance companies (MFCs).

In 2020, SRC is planning to deploy more than SAR 20 billion, mainly from purchasing portfolios. The company is currently in talks with several entities to purchase their mortgage portfolios and will announce the relevant details soon.

Q: In a previous statement, SRC said that it aims to refinance 10% of the home loans market during 2020. Have you achieved this target? Can you boost this percentage or buy more portfolios this year amid a decline in SAIBOR?

A: Not yet, but SRC is working to achieve this target. The company’s goal is to adapt and be ready to overachieve, if and when required by primary originators. SRC is a major enabler in the market.

Q: How do the government and SRC support individuals in terms of refinancing and forbearance and How can individuals benefit from this opportunity?

A: The Saudi government has played a crucial role in building a resilient economy and finance markets in the Kingdom. The latest show of prudence by the government was witnessed as part of the sweeping COVID-19 economic stimulus measures by the Saudi Arabian Monetary Authority (SAMA) to pump liquidity into the economy and directly support small and medium enterprises (SMEs) by deferring loan repayments for six months; and offering loan packages to SMEs to help them continue their operations, in addition to a loan guarantee program.

The Saudi government’s support packages reached around SAR 230 billion for various programs, which directly or indirectly protect individual and household income in the Kingdom.

On the other hand, SRC believes that its role is similar to SAMA’s in terms of providing liquidity to the markets as it purchases mortgage portfolios from partner banks and MFCs, to offer more loans and ensure that all citizens in the Kingdom can own homes.

To support customers during COVID-19, SRC launched a forbearance program that allowed private, and not only health sector, employees whose mortgage portfolio is held in SRC’s books to defer their payments by at least three months without any additional costs.

More than 35% of SRC’s customers were recipients of this program that allowed them to weather the negative economic impact of the COVID-19 outbreak and concentrate on the wellbeing of their household and families.

Q: What are the potential implications of COVID-19 on the mortgage markets in the Kingdom?

A: Like every other sector, there is a short-term impact on the mortgage markets in the Kingdom. SAMA reported a 22% drop in banks’ mortgage origination (new contracts) in April, compared to March.

As fewer people look for homes and go to banks to inquire about mortgages, there will be a short-term flattening of new mortgage uptakes. As the economy has opened up, and since SRC strongly believes that the mortgage market is underpinned by strong trends (demography among others), new mortgage uptake and inquiries will likely begin to rise again.

Due to the COVID-19 outbreak, finance and real estate companies potentially will evolve and provide digital products that allow people to stay at home and still do what they could physically.

These include mobile apps that allow swift paperless financial transactions and 3D renderings of real estate property that do not require people to physically be inside the property for an initial preview. Digital transformation acceleration will be the legacy left behind by the COVID-19 outbreak on the mortgage markets and the finance industry as a whole that will resonate even after the crisis subsides.

Q: Will banks’ liquidity suffer negative impacts post COVID-19? Will SRC play a role to ease liquidity concerns in banks?

A: Similar to the global markets, there will definitely be a liquidity squeeze in the Saudi financial sector considering the impact COVID-19 has had on businesses. However, SRC expects this impact to be minimal, due to the government stimulus initiatives.

Since 2017, SRC has been deploying its balance sheet to provide banks and MFCs with liquidity in order to allow them to lend more. We will continue to do so in the post-pandemic period but our role will become even more crucial for the financial sector in the Kingdom as in most cases and as underlined by analysts, their business model will have to evolve. 

Q: How are lower interest rates impacting refinancing activities and Are more people taking advantage of these?

A: Existing mortgage holders in the Kingdom have a once in a lifetime opportunity to refinance their mortgages at historic low rates. At SRC, lending rates have been reduced three times since last year and SRC’s rates were stable to ensure that we facilitate access to the best rates for Saudi citizens to own homes.

Moreover, SRC’s flagship product, Long Term Fixed Rate (LTFR) mortgage, allows customers to lock in these record low rates that we currently have, for up to 25 years. If you were to compare current rates with the lending rates for people that took out mortgages in 2018, a 25-year fixed rate mortgage would save hundreds of thousands of riyals over the tenure of the mortgage with today’s rates. Individuals can use that money to finance their everyday routine lifestyle or upgrade essentials such as home interiors, family car or even take a trip abroad.

We encourage everyone to visit our partner banks and especially if their mortgage is 2 years old or more, to get a quote to get their mortgages refinanced to rates as low as 2.41% flat. These are one of the lowest rates in the region.

The Saudi government and SRC have laid out a great framework for people to make use of and we are continuously trying to improve it. It’s now up to the people to take advantage and reap the benefits of our products.

Q: SRC was reported to be planning an international sukuk issuance. Is there a certain date for this issue? What about the issuance size and the purpose of this funding?

A: Sukuk are imperative to SRC’s business model. While sukuk provide the company with the liquidity required for purchasing more portfolios or providing funding to primary originators, they serve as a gateway for investors to get into the Saudi housing market, which has huge growth potential with an attractive risk return proposal. SRC will tap into the international markets for the first time, as it is planning a dollar denominated international sukuk issuance by the end of the year hopefully. The issuance will allow investors abroad to access the benefits of the Saudi housing market whilst contributing to its development.

SRC is about to launch its Request for Proposal (RFP) for the set-up of this international program that may be sized at up to $5 billion. Inaugural issuance is expected before year end, but that will be only a first step of course as SRC plans to be a repeat issuer.