Interview: Fabrice Susini
How do you assess the performance of the mortgage market in the years prior to 2023?
FABRICE SUSINI: The market grew throughout 2022, even though the pace was slower than in 2020-21. This is due in part to rising interest rates, increasing prices for mortgages, which had an impact on potential borrowers. Nevertheless, the fundamental elements sustaining the growth of the mortgage sector remain strong, such as demographic advantages, GDP growth, low unemployment and continued governmental support.
In this context, it is pertinent to note that banks in the Kingdom have a dominant position in the mortgage market, with a 98% share, while mortgage finance companies play a relatively minor role. Looking at markets such as the US, where banks participate far less in the origination process compared to brokers and other players, the difference with Saudi Arabia is significant. The Kingdom still has the features of a classical mortgage market, closer to the European model. The mortgage business for banks in Saudi Arabia also experienced growth in recent years, going from 5% in 2017 to 28% in 2022 in terms of the proportion of mortgages across consolidated banks’ balance sheets.
Where do you see challenges for players in the financing sector, and how might they be overcome?
SUSINI: The more banks face difficulties from a liquidity or balance sheet standpoint, the more they will be incentivised to work with refinance firms and rely on the support of other market players. This is the situation in Saudi Arabia in 2023 compared to previous years.
One challenge comes from the indirect impact of interest rates. The more expensive mortgages are, the more challenging it is for first-time buyers to achieve homeownership. As a result, mortgage markets may slow down. However, this effect is mitigated by governmental support through subsidies. It is worth noting that this situation is exceptional – as long as borrowers meet the eligibility criteria, they may be in a position to pay no interest on their mortgage. In any case, this scenario may limit growth potential for lenders.
Another challenge relates to liquidity. The government’s approach has shifted in recent years. While in the past it injected surplus cash into banks during periods of rising oil prices, it now directs these funds towards specific objectives, like infrastructure projects through organisations like the Public Investment Fund. Consequently, banks are facing a liquidity gap, as their assets grow at a faster pace than their deposits. To counter this, banks have resorted to issuing long-term papers in international markets. While there are other factors like macroeconomic and geopolitical uncertainties, these are outside of our control, and are therefore secondary concerns. The primary challenges lie in adapting to the government’s new liquidity policy and managing asset growth relative to available deposits.
What is the feasibility of the target of 70% homeownership as part of Vision 2030?
SUSINI: Market expansion is supported by demographic elements, macroeconomic factors and the government’s fiscal management, creating a basis for optimism. Although the rate of growth rate may slow from the rapid pace experienced during 2019-22, it will still be substantial compared to Western economies.
Managing the market as it matures remains a challenge. In developed markets, home affordability and ownership can conflict, with measures to make homes more affordable leading to potential negative consequences on the supply side. However, in emerging markets homeownership and affordability go hand in hand, benefitting a larger percentage of the population.
Looking ahead, the real challenge will come when the market stabilises and matures. We must prepare for that stage and consider the policies and measures required to address future challenges and ensure sustained growth in homeownership. Overall, the housing market dynamics in the Kingdom are promising.
