Saudi mortgage refinancing firm to court foreign investors

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The Kingdom has announced plans to raise the rate of home ownership from 47 percent to 52 percent by 2020. (Reuters)
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Fabrice Susini
Updated 04 December 2017

Saudi mortgage refinancing firm to court foreign investors

LONDON: Saudi Arabia’s first mortgage-refinancing firm will actively court international investors to increase liquidity in the Kingdom’s housing market, said the CEO of the initiative.
The newly established Saudi Real Estate Refinance Company, which seeks to free up liquidity in the Kingdom’s mortgage market to promote homeownership, has already embarked on “soft discussions” with investors interested in the new market opportunity, CEO Fabrice Susini told Arab News.
“It’s not good enough simply to focus on the country and domestic investors. We want to have foreign investors interested in coming and investing into these loans or portfolios,” said Susini, who was picked to lead the state-run company, which officially launched in October.
With $1.3 billion in initial capital, the SRC will use a range of tools — from buying mortgage portfolios to issuing mortgage-backed securities — to incentivize lenders to give more loans to Saudi homebuyers.
According to Saudi officials, the demand for real estate financing is set to top SR500 billion ($133 billion) by 2026.
But Saudi citizens, particularly young people, have been hit in recent years by the double blow of a Kingdom-wide housing shortage and risk-averse banks wary of lending.
The Kingdom has announced plans to raise the rate of home ownership from 47 percent to 52 percent by 2020. By comparison, the US and UK both have home ownership rates above 60 percent.
Establishing the SRC, which expects to refinance up to $20 billion over the next five years, is part of an effort to remedy the nation’s low mortgage penetration rate, Susini said.
The SRC, which works under the auspices of the Ministry of Housing, will initially court investors closer to home.
“Our strategy is to go gradually, starting with the region, (with) countries which are close and knowledgable about the Saudi environment and the Shariah compliance,” Susini said. “As we will create credentials and history on the portfolios themselves … we will go after investors which are further away from the Kingdom or the region,” he said.
Secondary mortgages, which drew global attention during the financial crisis of 2008, are new to Saudi Arabia. According to reports, the Kingdom’s financial leaders have been working with American consultants to launch the enterprise for several years.
But Susini stressed that easing the mortgage process for average Saudi citizens is the SRC’s primary objective. “The SRC is really (meant) make sure that more people get access to home ownership,” he said. “The rest … the way we organize … all this is done in the kitchen. You are at the restaurant; we want people to have a good dish, at an affordable price. What happens in the kitchen, let’s leave it in the kitchen,” he said.
Asked when the company would officially launch operations and put the existing capital to work, Susini was circumspect. “Soon,” was all he revealed.
In an economy where cash is king and people are accustomed to paying upfront, new market realities will require new financing tools. “We need to explain why a reasonable amount of debt is advisable and will help fund your objectives,” Susini said.
Susini, who worked as a fixed income specialist at BNP Paribas for two decades, said that the SRC would help unlock capital across the entire real estate ecosystem. With more home loans available to buyers, building developers may be more keen to launch projects, he posited.
Broadening the country’s real estate sector is part of Crown Prince Mohammed bin Salman’s effort to wean Saudi Arabia off oil dependency and create modern financial markets more open to outside investment.


Davos session examines Indian Ocean Rim’s strategic outlook

Updated 22 January 2020

Davos session examines Indian Ocean Rim’s strategic outlook

  • DP World’s chairman wants more cargo traffic between Indian Ocean Rim countries
  • Australia’s finance minister says country’s aim is to “beat” its emission-reduction targets

DUBAI: Technology and sustainable practices will increase investment opportunities in countries of the Indian Ocean Rim, the World Economic Forum in Davos, Switzerland, heard on its opening day.
The observation was made by Sultan Ahmed bin Sulayem, Group Chairman and CEO of DP World, during a panel discussion on Tuesday entitled “Strategic Outlook: The Indian Ocean Rim.”
The session examined the strategic priorities of a vital region that is home to 2.7 billion people and sees two-thirds of the world’s oil shipments — and half of all container ships -pass through its waters.
Sulayem said he wanted to see more cargo traffic between countries and fewer rules and regulations that create barriers to free trade.
“In our business we look at how to increase cargo,” he said. “One percent in GDP growth results in three percent increase in cargo,” in addition to higher employment.
Talking about DP’s investments in India, Sulayem said the company has poured a total of $2 billion into the country’s infrastructure sector, in projects such as double-stack train, cold-storage facilities and logistics parks in the last two years.
“We are interested in investing more in India’s infrastructure and we believe there is a lot of growth prospects in the country,” he said.
Sulayem said India’s regulatory regime was partly responsible for the slow development of the country’s infrastructure.
“It is encouraging that the current political dispensation has done away with many legacy issues,” he said. “When you see their vision, (it is clear) they want to adopt tomorrow’s technologies for today’s (applications).”
Sulayem said he felt improving the investment climate is a top priority for the present Indian government.
On a global level, he said given the rapid pace of technological developments, automation everywhere will increase the number and quality of jobs.
“This is the age of the brain. It is all about the new ideas people can come up with and deploy,” he said. “If you have ideas, you make more money.”
Sulayem pointed out that phones, TVs and other devices are no longer made by humans, but instead made by machines that are built by humans.
Participating in the same session, Piyush Goyal, the Indian Minister of Railways and Commerce and Industry, admitted that improving the country’s regulatory framework has long been a challenge for the government.
“Foreign investment is hesitant to come to India because of concerns over how the government functions, how licenses are issued, and whether there is fair opportunity,” he said.
“But we have made a conscious decision we would like India to be recognized across the world as an honest nation. We would like to come into the league of nations where everyone can come and do transparent business, where equal opportunity is provided for all.”
During what he called the transition phase, “short term pain” is bound to be felt by Indians, Goyal said, adding that this is a process the nation is ready for.
Arguing that India had allowed energy to be imported without significant efforts to tap into its own natural resources, he said: “This is another area of focus as we are looking to try and make India more attractive and self- sufficient.”
If there is a buzzword at the Davos forum this year, it is undoubtedly sustainability. Addressing the topic, Mathias Cormann, Australia’s Minister for Finance, said his country is strongly committed to effective action against climate change.
The aim of Australia is to not only “meet” but “beat” the emission-reduction targets set by the Kyoto Protocol, he said.
“We will reduce out emissions by more than 400 million tons of carbon dioxide. We are on track — and have the policies in place to meet that,” Cormann said.
As for trade, currently five out of Australia’s 15 top trading partners are in the Indian Ocean Rim and 90 percent of its exports are transported by ship, out of which half travel through the Indian Ocean, he said.
Furthermore, “30 percent of the people in the world live in the Indian Ocean Rim countries, yet we are only responsible for 11 percent of global trade,” Cormann said.
Commenting on the convergence of trade and the environment, Sulayem said a common misconception among companies around the world is that that adopting eco-friendly business practices is costly.
“It actually saves money,” he said. “In our ports we have done away with all the diesel used in equipment and we use electricity. We have changed all the bulbs to LED.
“We recovered the cost of the change in one year” through energy savings.
In this context, Sulayem praised the International Maritime Organization’s (IMO) decision to enforce rules that require the marine sector to reduce sulfur emissions by over 80 percent by switching to “green (low-sulfur) fuels.”