The Saudi Real Estate Refinance Company (SRC) was established in 2017 by the Public Investment Fund (PIF) as part of Saudi Arabia’s Vision 2030 housing programme. The main objective of SRC is to increase the rate of homeownership among Saudi nationals. This is accomplished by providing liquidity solutions to primary originators or financiers at the lowest possible profit rates, which allows them to offer affordable home financing to Saudi citizens.
SRC works in collaboration with the Ministry of Municipal and Rural Affairs and Housing, banks, real estate refinancing companies, and other members of the housing ecosystem to collectively resolve issues that impede homeownership in the Kingdom.
In an interview with International Finance, SRC discussed various topics related to the company, including its services, short- and long-term funding, its contribution to Saudi Arabia’s ‘Vision 2030’, Sukuk issuance, and much more.
Enlighten our readers about some of the services provided by SRC, when it comes to real estate financing in the Kingdom.
SRC plays a pivotal role in real estate financing in Saudi Arabia by offering a range of services designed to bolster the secondary real estate finance market. Key among these services are capital and risk management solutions provided to banks and real estate finance companies. These solutions are aimed at enhancing their financing capabilities and ensuring sufficient market liquidity.
SRC aims to promote liquidity in the real estate finance sector and reduce financing cost by buying portfolios and providing credit facilities to real estate financiers. It also issues debt instruments backed by real estate assets. SRC seeks to promote the growth and stability of the real estate finance sector in Saudi Arabia.
A flagship offering of SRC is the Long-term Fixed Rate (LTFR), which provides a stable profit rate over the duration of a home loan, thereby protecting beneficiaries from market volatility. Additionally, SRC supports the market by purchasing home financing portfolios from its partners, thus injecting liquidity that supports in achieving the Kingdom’s financial and homeownership objectives. This, in turn, contributes to lower home financing rates for Saudi citizens.
Liquidity and hedging solutions, along with financial risk management, are the areas SRC have established its speciality in the last few years. What sets SRC apart from its competitors?
SRC has distinguished itself in its role as the leading entity in the secondary real estate finance market, where it has become the partner of choice for major banks and real estate finance companies in Saudi Arabia.
A significant contributor to SRC’s success is its role in the notable increase in homeownership in the Kingdom, from 47% in 2020 to 60%, progressing towards the Vision 2030 goal of 70% homeownership. This growth has been largely fuelled by SRC’s Sukuk issuance programmes, which have substantially bolstered market strength.
Furthermore, SRC’s alignment with government initiatives and its support of housing goals position it uniquely in the market. This trusted partnership with banks and real estate finance companies is underpinned by solid foundations and a strong outlook, as evidenced by the high credit ratings SRC has received: ‘A+’ (stable) from Fitch Ratings, A- (stable) from S&P Global, and ‘A2’ (positive) from Moody’s. These factors collectively reinforce SRC’s leadership and expertise in the sector.
SRC provides both short- and long-term funding to its partners for use in housing financing. Tell us about this service.
SRC has been providing short-term and long-term funding to its partners, helping promote a healthier real estate finance market and injecting the liquidity that enables lower rates, supporting the growth of homeownership in the Kingdom. This is a cornerstone of SRC’s strategy to foster a more robust and healthier secondary real estate finance market in Saudi Arabia. By injecting liquidity into the market, SRC enables its partners – primarily banks and real estate finance companies – to offer more competitive and affordable rates to homebuyers.
SRC’s approach acknowledges the complexities and potential risks associated with variable real estate financing rates. While real estate financing with floating rates can offer initial lower rates and flexibility, they also expose beneficiaries to the risk of fluctuating repayments.
To mitigate these risks, SRC focuses on promoting stable, long-term funding options. By doing so, it aims to provide a foundation for more predictable and sustainable real estate financing repayments for beneficiaries. Through these efforts, SRC not only contributes to the individual well-being of homeowners but also to the overall stability and growth of the Saudi housing market.
Real estate has been seen as one of the major growth drivers of the Saudi economy of late. Tell us how SRC will participate in the fulfilment of the Kingdom’s ‘Vision 2030’.
The real estate finance sector is a key growth driver in the Saudi economy, and SRC is at the forefront of supporting this growth in line with the Kingdom’s ‘Vision 2030’. SRC contributes to the sector’s expansion primarily by providing liquidity. This is achieved through the purchase of home financing portfolios from banks and real estate finance companies, a strategy that directly impacts the rise in homeownership rates in Saudi Arabia.
SRC’s efforts are further bolstered by its Sukuk issuances and capital injections into the market. These initiatives not only facilitate more financing at competitive rates but also mitigate the risks typically associated with home financing. As SRC continues to work in close collaboration with its partners, its focus remains on driving the Vision 2030 housing programme, with the ambitious target of increasing Saudi homeownership to 70% by 2030. This concerted effort positions SRC as a key enabler in realising the Kingdom’s housing and economic objectives.
SRC has been providing the Kingdom’s real estate market with liquidity/capital relief, apart from enabling the growth in the homeownership ratio among Saudi citizens. Tell us in detail about this.
SRC plays a fundamental role in enhancing the Kingdom’s real estate finance market, primarily by providing liquidity and capital relief. This function is crucial in fostering growth in the homeownership ratio among Saudi citizens, a key objective in line with the Kingdom’s Vision 2030.
A significant aspect of SRC’s strategy to bolster the real estate finance market is its issuance of Sukuks in the context of SRC, these Sukuks have been pivotal in generating the necessary funding to stimulate more financing activities among its partners, including banks and real estate finance companies.
By introducing additional liquidity into the market through these Sukuks, SRC effectively enables its partners to extend more financings to potential homeowners. SRC’s approach ensures that while there is an increase in market liquidity, it does not lead to disproportionate increases in risk. This is essential in creating a stable and healthy real estate finance market.
Moreover, the increased liquidity in the market, facilitated by SRC’s Sukuks, allows financiers to offer more competitive rates. Lower financing rates make home financing more accessible to a broader section of the population, thereby directly contributing to the growth in homeownership among Saudi citizens. This not only benefits individual homeowners but also stimulates the overall real estate finance sector, leading to economic growth and development.
SRC’s issuance of Sukuks and its role in providing liquidity and capital relief are central to its mission. These efforts support the creation of a dynamic and accessible housing market, enabling more Saudis to own homes and contributing to the Kingdom’s broader economic and social goals.
Enlighten our readers about your sukuk issuance.
Our business model is focused on supporting the development of the housing market in Saudi Arabia and ensuring that the real estate industry enables originators to offer home buyers long and short-term financing solutions.
SRC is a constant Sukuk issuer, supporting the financial sector development by offering alternative financial solutions to ensure the availability of new sources of financing and attracting local and international investments to the real estate sector. We raise capital by issuing Sukuk locally with the active participation of Shariah-compliant banks in KSA.
In 2018, we launched our domestic Sukuk programme, which allowed the issuance of up to SAR 10 billion. The programme was guaranteed by the Kingdom of Saudi Arabia through the Ministry of Finance. The programme was completed in a record timeframe of 12 months and in 2022, SRC doubled the total size of the programme from SAR 10 billion to SAR 20 billion.
Despite volatile market conditions, the various tranches were oversubscribed by a significant average which demonstrates the investor trust in our business model and the Kingdom’s housing and financial market.
As a constant Sukuk issuer, we are proud of the strong track record we have established over the past few years and are determined to continue to support the development of the financial sector in the Kingdom by offering new and alternative financial solutions that attract local and international investments.
The funding raised will also enable us to deliver on our main mission to increase market liquidity and support originators and financiers thereby stabilising the Saudi real estate finance market and accelerating homeownership growth in the Kingdom.
SRC has hedging solutions, along with portfolio acquisition services. When it comes to ensuring market liquidity, how useful are these products?
SRC provides financial solutions that are imperative for ensuring market liquidity, particularly through its hedging solutions and portfolio acquisition services. These offerings play a pivotal role in stabilising and growing the real estate finance market in Saudi Arabia.
Portfolio acquisitions are a key component of SRC’s offerings and are particularly instrumental in managing market liquidity. When SRC purchases portfolios from its partners, it effectively alleviates the risk burden on these financial institutions. This process not only injects liquidity into the market but also allows financiers to offload part of their risk. As a result, banks and financial institutions find themselves in a more secure position, with increased capacity to issue new real estate financings. The increased liquidity provided by SRC’s portfolio acquisitions encourages financiers to offer real estate financings at more competitive rates. This is because the reduced risk and enhanced liquidity make it more feasible for financiers to extend credit. This approach aligns with SRC’s overarching mission to support the growth and stability of the housing market in Saudi Arabia. By ensuring that financiers have the resources and confidence to extend real estate financings at attractive rates, SRC plays a vital role in making homeownership more accessible to a broader segment of the population.