With a capital of five billion riyals, the Saudi Arabian Monetary Authority plans to launch the first company specializing in mortgage refinancing, with the Public Investment Fund holding a (51%) stake, 30% of the company’s capital will be allocated to mortgage finance companies seeking financing, provided they have been in operation for at least five years; a portion of the company’s capital may be offered for public subscription.
The establishment of the company aims to support and provide liquidity to real estate finance companies, particularly as these companies have become better equipped to manage real estate financing risks and adapt to the challenges inherent in the nature of the finance sector—especially since they do not accept deposits as banks do, The company is expected to enhance the competitiveness of real estate finance companies by creating financing products better suited to adapt to changes in the housing market, thereby reducing interest rates on financing products.
The company was established under the new real estate financing system that came into effect at the beginning of last year, with the aim of achieving growth and providing liquidity through the trading of real estate financing contracts in the secondary market, and acting as an intermediary between the private sector and local and foreign sources of financing.
The new company is expected to begin operations by the end of this year. Its launch follows the entry of real estate finance companies into a new phase, prompted by the Saudi Arabian Monetary Authority’s decision to raise the maximum loan-to-value ratio—as specified in Article (12) of the Executive Regulations of the Mortgage Financing System from 70% to 85% for non-bank mortgage financing companies.
Article 17 of the Real Estate Financing Law stipulates:
1. The Saudi Arabian Monetary Authority shall grant a license to one or more companies to engage in mortgage refinancing activities in accordance with the Mortgage Financing Law, the Law on the Supervision of Financing Companies, and its implementing regulations, subject to the following:
a. The license shall be limited to the activity of real estate refinancing.
b. The capital of a real estate refinancing company shall not be less than five billion Saudi riyals.
2. A mortgage refinancing company shall be subject to the supervision of the Saudi Arabian Monetary Authority in accordance with this Law, these Regulations, the Law on the Supervision of Finance Companies and its implementing regulations, and any instructions issued by the Authority.
In accordance with Article 19:
The new company aims to facilitate the trading of mortgage financing contract rights in the secondary market and to facilitate the flow of funds into it, for the purpose of:
1. Achieving growth and stability in the secondary market for real estate financing.
2. Providing liquidity to the secondary market and offering better avenues for real estate financiers to finance home ownership for beneficiaries.
3 – Enhancing the liquidity of mortgage financing investments and ensuring the proper distribution of investment capital allocated to mortgage financing across different regions and segments.
4- Acting as an intermediary between the sector and local and foreign sources of financing.
Article 20:
1. In order to achieve its objectives, the Real Estate Refinancing Company shall:
A – Acquire, hold, and manage any type of financing obligations or rights related to financed residential real estate.
B – Issue securities in accordance with the provisions of the Capital Markets Law after obtaining a letter from the Authority stating that it has no objection.
C – Undertake any other operations that serve, complement, or support its operations as required by its bylaws and approved by the Authority.
2. The Mortgage Refinancing Company may charge a fee for its services to ensure that all its costs and expenses are covered and that it realizes a fair profit therefrom, thereby enabling it to be financially independent. The Authority shall oversee the company’s pricing of its services and may restrict it.
The regulations prohibit the real estate refinancing company from doing the following:
1. Granting financing to a mortgage lender secured by rights under mortgage financing contracts before those rights are transferred to the Mortgage Refinancing Company as collateral.
2. Granting mortgage financing to borrowers.
3. Easing mortgage financing terms with the aim of influencing housing prices in a manner that violates best practices in credit and risk management.
The mortgage refinancing company must prepare and publish annual and quarterly reports on its financial position, operations, the risks to which it is exposed, and its risk management plan; it must also provide these reports to the Authority. The reports must include financial statements prepared in accordance with International Financial Reporting Standards.
