Saudi home finance company in final stages

Saudi Arabia’s national home finance firm, Bidaya, may open its doors by the end of this year, part of efforts to raise low levels of home ownership in the country, its founding sponsor said.

In development since 2010, the company is a venture between the Finance Ministry’s Public Investment Fund and the Jeddah-based Islamic Corporation for the Development of the Private Sector (ICD), a unit of the Islamic Development Bank .

Bidaya is in its last phase of development prior to launch and will submit an application for a license as soon as regulations under the kingdom’s mortgage laws are finalized, ICD chief executive Khaled al-Aboodi told Reuters.

“Practically, we are planning to have the company operational by the end of 2014,” Aboodi said.

A shortage of affordable housing is an economic and social issue, and a source of price inflation, in the fast-growing country of about 30 million people, most of whom are under the age of 30; a lack of low- and medium-cost housing has been compounded by limited financing options for home ownership.

“Bidaya will increase access to finance for middle-income home buyers across the kingdom. Bidaya is an important project for the ICD and Saudi Arabia given its impact on the Saudi market and the sustainability of the sector,”Aboodi said.

He did not specify the number of customers or volume of business Bidaya expected, but said the “target size” of its paid-up capital would be 900 million riyals ($240 million).

The firm will use Sharia-compliant financing contracts such as ijara (Islamic leasing), diminishing musharaka and hybrid structures designed to meet local regulations, Aboodi added.

In diminishing musharaka, the lender and home buyer share the costs of purchasing a home; the home owner then pays rent to the lender while purchasing the lender’s share of the house in installments.

Capitas Group International, an international management firm with experience in setting up Sharia-compliant mortgage and real estate finance platforms, has been helping to prepare Bidaya for launch.

Home ownership in Saudi Arabia is just 30 percent, compared to a global average of 70 percent, while mortgage penetration is estimated at just 2 percent of gross domestic product, Al-Rajhi Capital said in a research note in January. Mortgage loans exceed 50 percent of GDP in many developed countries.

Home financing options offered by Saudi banks in the past have been limited; for example, buyers have had home payments automatically deducted from their salaries by lending banks.

In 2012 the kingdom introduced a package of mortgage laws to stimulate home financing, and since last December, the central bank has issued six real estate financing licenses to institutions including Riyad Bank, Arab National Bank and Amlak International.

But commercial banks are still feeling their way towards using the laws in practice, so authorities aim to supplement their efforts with financing from other groups such as Bidaya.

A version of this article appeared in the print edition of The Daily Star on April 23, 2014, on page 5.




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