In a significant development for Saudi Arabia’s residential real estate financing, the Public Investment Fund’s subsidiary, the Saudi Real Estate Refinancing Co. (SRC), has injected an impressive SR50 billion (approximately $13 billion) into the market. Founded in 2017, SRC’s mandate is to enhance market liquidity and offer capital and risk management solutions to bolster the housing finance sector.
With an eye on achieving the Vision 2030 target of 70 percent home ownership, the Saudi government has pioneered a model that includes the essential infrastructure for a robust secondary housing finance market. This includes the establishment of SRC as a national mortgage aggregator and refinancing entity.
Crucially, SRC’s model focuses on funding mortgage originators and finance companies rather than directly financing individual homebuyers. This strategy has proven critical in increasing the liquidity available in the secondary real estate finance market, thus supporting originators and financiers with the necessary capital.
According to SRC, its initiatives have led to the refinancing of real estate portfolios and liquidity provision to the real estate financing market surpassing SR50 billion. This capital infusion has enabled banks and financing entities to offer more affordable and stable real estate financing solutions, propelling development in this vital sector.
Prior to SRC’s establishment, housing refinance in Saudi Arabia was largely transactional. Banks would buy portfolios based on selective timing or to manage their exposure to housing finance. However, since 2018, the introduction of standardized refinancing solutions has decoupled from lenders’ immediate financial appetites, marking a significant industry shift.
Over the next two years, SRC facilitated 30 real estate refinancing transactions, aiding nine residential finance institutions with a combined value exceeding SR5.6 billion. From 2021 to 2023, the company’s refinancing efforts ramped up, totaling SR29 billion across 54 transactions and involving 16 residential real estate finance institutions.
The result has been a total refinancing volume exceeding SR35 billion, along with around SR15 billion in short-term credit facilities for real estate financiers to originate new loans.
These measures aim to bring stability, longevity, and innovation to the housing finance market. SRC’s CEO, Fabrice Susini, expressed the company’s ambition to be the primary partner for real estate financiers in the Kingdom, with a focus on enabling more citizens to access flexible financing solutions that align with their aspirations and contribute to increased home ownership rates.
SRC’s refinancing operates on two models: one that mitigates financing risk and capacity constraints through various financial solutions, and another that offers funding solutions to increase capacity and liquidity while retaining the financing contracts’ inherent risk.
To inject further liquidity into the market, SRC expanded its sukuk program offered to qualified investors, doubling the program size from SR10 billion to SR20 billion. These continuous issuances are aimed at attracting a broad investor base, both locally and internationally, to enhance market liquidity, stabilize the real estate finance market, and promote homeownership.
Embracing Islamic financing, SRC has raised capital through local sukuk issuances, aligning with Vision 2030’s Financial Sector Development Program and the housing program. The company has issued sukuk worth SR750 million in 2018 and 2019, and in 2021 launched a SR10 billion local sukuk program backed by government guarantees. This was followed by successive issuances culminating in a total program value of SR20 billion.
Looking ahead, SRC plans to diversify its funding sources by offering dollar-denominated bonds in global markets and to securitize portfolios through mortgage-backed securities. These moves aim to attract foreign investments and ensure a steady flow of capital to support the growth of the real estate financing sector in the Kingdom.
Majeed Fahad Alabduljabbar, SRC’s deputy CEO, emphasized the company’s dedication to the financial sector’s development and to providing liquidity that bolsters government efforts to increase home ownership among Saudi families. SRC’s role in facilitating market liquidity and providing innovative capital and risk management solutions is pivotal in creating new financing avenues for the residential real estate market, ultimately aiding borrowers in securing home financing with ease.