Saudi PIF-backed real estate refinance firm launches 11bn riyals sukuk programme

Saudi Real Estate Refinance Company, a fully owned subsidiary of Saudi Arabia’s sovereign wealth fund, set up an 11 billion-riyal (Dh10.8bn) sukuk programme aimed at increasing liquidity in the kingdom’s mortgage market.

HSBC Saudi Arabia has been appointed as the sole arranger and book-runner for the riyal-denominated Islamic bond programme, the company said on Thursday.

The Sharia-compliant bonds will be issued through multiple tranches and offered to investors “from time to time, at discretion”, the company said without giving the timeline of the issues or the size of tranches. 

Proceeds from the issuances will help the company fund its business strategy “to increase the liquidity in the Saudi Arabian mortgage market in compliance with its mission statement and pursuit of its objectives”, it added.

SREC is fully owned by
the Public Investment Fund and was set up in 2017 to increase home ownership among Saudi nationals and develop the housing finance market.

The company is part of the kingdom’s strategy to raise ownership of homes by citizens to 52 per cent from a baseline of 47 per cent, and boost the contribution of real estate financing to non-oil gross domestic product to 15 per cent from 8 per cent.

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Saudi Arabia’s residential real estate market, like the other Arabian Gulf states, has declined in the past few years on the back of the oil price slump that began in 2014 and pushed the prices of crude to below $30 a barrel in the first quarter of 2016.

The kingdom, Opec's biggest oil exporter whose economy still relies heavily hydrocarbons proceeds, had to cut spending and shelve projects in a market that was already facing a housing shortage.

Experts have warned the housing issues could worsen going forward as population in the biggest Arab economy continues to rise.

The government has responded with a series of initiatives to support the sector, including the introduction of the “white land” tax to prevent accumulation of land banks, new regulations for real estate investment trusts, an increase in the loan-to-value ratio for first home ownership, and the launch of the Sakani programme for affordable housing.

Saudi Arabia's residential market was expected to pick up this year as a result, according to a report in February from consultancy Knight Frank.
The kingdom, which is going through a massive economic overhaul, plans to double the contribution of the real estate sector to national gross domestic product to 10 per cent under its 2020 National Transformation Programme.