Saudi Arabia is setting up a fund to provide funding for home ownership. According to Bloomberg, the Public Investment Fund (PIF) is setting up a mortgage refinance company, which we believe will be similar to Freddie Mac and Fannie Mae in the US.  The Saudi Real Estate Refinance Company aims to refinance SAR75bn in mortgages in five years and more than double that by 2026. To put these numbers in context, as of 2Q17, retail real estate loans amounted to SAR115bn in the Kingdom.
 
Our view: This is another step (see list of earlier measures below) by the authorities to boost the housing market in Saudi Arabia. The establishment of this fund should make housing finance available to a wider income group. The formation of the fund will create a secondary market for mortgages, create liquidity for the banks and allow them to lend more in other areas. The fund will acquire mortgage portfolios and issue sukuks as mortgage-backed securities for investors. Banks should benefit as the increase in demand for housing would stimulate the economy and create demand for credit.
 
The establishment of this fund comes after the introduction of other measures to stimulate the housing market: 
 
        White Land Tax (Nov 2015)
        Higher loan-to-value ratio (Jan 2017)
        Reduction of risk weighting on mortgages (Apr 2017)
        Scrapping of administration fees on refinancing (Sep 2017)
 
Establishment of fund is in line with vision 2030: The development of this fund is in line with the goals outlined in the Kingdom’s Vision 2030. 47% of families already own a home in Saudi Arabia and the government aims to increase this rate by 5 percentage points by 2020 to 52%, as per the Vision 2030 document. The government says it wants to achieve this target by introducing a number of laws and regulations, encouraging the private sector to build homes and provide funding, mortgage solutions and ownership schemes that meet the needs of its citizens.

(Shabbir Malik, Murad Ansari)