Home mortgage provider Saudi Real Estate Refinance Company (SRC) will further strengthen Saudi Arabia’s position as the largest Islamic finance market globally as it expands its balance sheet and becomes a more significant issuer in the sukuk market, Moody’s Investors Service said in a report.

The Public Investment Fund (PIF)-backed SRC will likely fund some of that future growth through securitisations and covered bonds, having relied largely on Shariah-compliant wholesale funding and government backing to date.

“Going forward, the diversification of mortgage funding that securitisation provides would further increase home ownership in Saudi Arabia, a key pillar of the kingdom’s Vision 2030 plan that will have tangible social benefits,” the ratings agency added.

Key initiatives driving mortgage market growth since 2012 include the Ministry of Housing and Real Estate Development Fund’s launch of the Sakani programme in 2017 and the establishment of the SRC in 2017.

The SRC has complemented government plans to increase homeownership among Saudis and deepen the capital markets by creating a secondary mortgage market. It aims to standardise mortgage offerings, lower rates on long-term fixed-rate mortgages and encourage banks to move to facilitate mortgage origination.

The mortgage company’s setup allows banks to free up capital and generate liquidity as and when needed.

“More banks will likely start utilising the SRC’s mortgage purchase facility to free up their balance sheets,” Moody’s noted.

Since 2018, banks’ residential mortgage lending grew at a compound annual growth rate (CAGR) of 41%, far outpacing commercial real estate lending’s CAGR of 9%.

Mortgages made up about 30% of total lending to the private sector in 2022, up from 17% in 2018.

“While growth has slowed in the past 12 months, we still expect the country’s growing youth population to support the market in the future,” Moody’s stated.
(Editing by Seban Scaria seban.scaria@lseg.com)