Saudi’s new mortgage scheme to encourage homebuyers

Reuters/Faisal Al Nasser

• $4.7bn firm Dhamanat will provide insurance alongside mortgages
• Focus on potential homeowners previously excluded from market
• Kingdom targeting 70% home ownership as part of Vision 2030

Saudi Arabia has launched a new mortgage guarantee services firm in an effort to increase home ownership among nationals.

The Saudi Real Estate Development Fund (REDF) has launched Dhamanat, a wholly owned subsidiary, with SAR18 billion ($4.7 billion) in capital to provide insurance, alongside mortgages.

Mortgage issuance fell by more than one third year-on-year in the first quarter of this year.

Speaking in an interview with Saudi TV channel Al Ekhbariya, REDF CEO Mansour bin Madi said that Dhamanat is designed to help Saudi nationals to own their own homes, as well as to support off-plan sales of projects across the kingdom.

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Dhamanat will also encourage firms to offer subsidised home ownership financing to promote accessibility to affordable housing.

“The launch of Dhamanat will definitely have a positive impact because it focuses on a new target audience within the market,” Hattan Alsharif, a research analyst in Saudi Arabia for CBRE, the real estate consultants, said. 

Alsharif added that the new entity will provide an opportunity to those who have been excluded from the market up until now due to their financial situation, as well as those who do not possess a steady income, like freelance workers.

“It will also help people who work within the private sector because many Saudis are starting to work for multinational companies who are moving to the kingdom and they might be excluded from securing finance from the banks,” he said.

In 2016, the Saudi government unveiled a target of 70 percent home ownership as part of its Vision 2030 plans. 

According to the Saudi Population Census 2022, published in May, the number of Saudi households owning homes reached 61 percent by the end of last year – 19 percent of which was through a mortgage or loan.

Industry experts pointed out that these ambitions are woven into the kingdom’s Vision 2030 plan to develop the housing market.

“Saudi authorities have been quite consistent in executing the Vision 2030 strategy,” said Roman Rybalkin, a credit analyst at S&P, the ratings agency.

“And the creation of a guarantee company to minimise risks for financing entities – supporting both the demand and supply side of the market – has been on the agenda for the Vision’s 2021-2025 housing program delivery plan from day one.”

However, Rybalkin was less sure that the new vehicle will provide a fillip to Saudi’s flagging mortgage market.

“I do not think this will have a pronounced impact in the short run as fundamentals – notably higher interest rates – will continue exerting pressure,” he said.

Saibor – the rate of interest charged on short term loans between Saudi banks – stands at 5.75 percent. 

“However, in the mid term, this will widen the scope of instruments available for the authorities to fine tune their support of the housing market,” Rybalkin said.

Other tools that the authorities are using to support housing include refinancing opportunities for lenders through the Saudi Real Estate Refinance Company. 

The government also offers plots of land to build new homes as part of the Sakani program, as well as direct involvement in construction, for example, through Saudi property developer Roshn, which is wholly owned by the kingdom’s Public Investment Fund (PIF).

Speaking in London last month, Roshn CEO David Grover said that the developer plans to spend tens of billions of pounds to build communities which will house over 2.2 million people by 2030. In total, Roshn will be investing up to $109 billion (SAR410 billion) by 2030.