Saudis see hope in Fannie Mae model

The announcement that Saudi Arabia is planning to set up a Fannie Mae-style company, operating like the Federal National Mortgage Association in the US, to buy mortgages from financial institutions, has set the kingdom buzzing with the belief that at last the Saudi property sector will take off.

Given the considerable potential of the Saudi housing market, this should also be attractive news to Gulf investors seeking to diversify into property in Saudi Arabia.
The proposed company will in effect become the primary purchaser of eligible home loans from institutional issuers. It will have the mandate to securitise these loans into mortgage-backed securities, sell them to investors through Islamic sukuks and create a liquid secondary market. The company, which is due to launch by the end of the year, according to the Saudi finance minister, Ibrahim al Assaf, will come on the heels of the approval of the long-awaited Saudi mortgage law. This has been eagerly awaited by Saudi banks seeking to institutionalise mortgage financing.

There is not much first-hand information on the potential size of the Saudi property market. Housing market forecasts and estimates are based on huge projects in the pipeline. Some independent academic studies have been carried out, one of which was by King Fahd University of Petroleum and Minerals, based on input from Saudi developers on existing and planned projects. The study revealed that the value of Saudi projects, excluding individual housing supply carried out by individuals, was an estimated 2.71 trillion Saudi riyals (Dh2.66tn).