Real Estate

Saudi Arabia embraces mortgage-backed securities

January 3, 2025, 11:45 AM

No other Gulf state has yet adopted mortgage-backed securities. Saudi Arabia is targeting a 70% rate of home ownership by the end of the decade

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Saudi officials have signed a preliminary deal this week to issue residential mortgage-backed securities, a first for the Gulf.

The Saudi Real Estate Refinance Company (SRC), which is owned by the Public Investment Fund (PIF), and the Hassana Investment Company, which manages the assets of the national social security and pension fund, signed the memorandum of understanding on January 1.

“Our partnership with Hassana marks a significant milestone in supporting the evolution of the housing finance landscape and fostering the development of Saudi Arabia’s capital markets,” SRC’s chief executive Majeed Al Abduljabbar said in a statement.

Mortgage-backed securities are investments like bonds. Each is a share in a bundle of home loans and other real estate debt bought from the banks or government entities that issued them. Investors in mortgage-backed securities receive periodic payments like bond coupon payments.

Under Vision 2030 Saudi Arabia has been working to boost home ownership among citizens, with a goal of reaching 70 percent by the end of the decade.

The country is progressing rapidly toward this milestone, with estimates putting the amount of people who own their houses at nearly two-in-three.

As a result, however, officials have had to contend with fast-rising property prices and liquidity constraints in the local banking system as demand for mortgage lending keeps rising.

Home loans in Saudi Arabia have jumped from almost $53 billion in 2019 to nearly $175 billion at the end of September, according to the latest figures from the Saudi central bank.

In November new bank loans for single-family villas, apartments and land reached almost $2.7 billion, a 51 percent increase year-on-year, the central bank found.

Against this backdrop, increasing the depth and sophistication of the secondary market for mortgages has become a government priority, using refinancing and securitisation tools common in the US but nascent in the Gulf.

According to a press release, the new partnership between SRC and Hassana means the former will issue the residential mortgage-backed securities and the latter will purchase them as a “leading institutional investor”. The securities, however, will target “a diverse base of local and global investors”.

Blackrock, the world’s largest asset manager and partner in other Saudi initiatives in the mortgage sector, told AGBI in September that the company’s clients globally “have increasingly expressed interest in having exposure to Middle East assets”, with Saudi Arabia in particular emerging as “an increasingly attractive destination for international investment”.