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Sidra Capital plans mortgage company
Published in The Saudi Gazette on 16 - 07 - 2012

RIYADH – Saudi Arabian investment bank Sidra Capital plans to set up a housing mortgage firm with SR1 billion ($267 million) of capital to tap growth expected after the Kingdom passed a law covering mortgages, a senior executive said.
Sidra, which is 20 percent owned by Kuwait's Aayan Leasing and Investment Co., said the firm would be jointly owned with many shareholders and that the Saudi government's Public Investment Fund (PIF) would have a sizeable stake in it.
"This was an initiative in 2009 that was postponed until passing the (mortgage) law. Now we already called for a meeting for the founding shareholders and our technical partner will be one of the big banks in Canada," Hani Baothman, Sidra's managing director and chief executive, told Reuters in a phone interview. He declined to name the Canadian bank.
"The capital will be SR1 billion. We are currently waiting for the regulations. PIF will hold a sizeable stake in the firm. Sidra's stake will be sizeable in relation to the size of equity - it will not be 3 to 5 percent but above."
After over a decade of study, the government approved at the start of this month the country's first law permitting home mortgages. Finance minister Ibrahim Alassaf said the law would be implemented within 90 days, after the central bank completed designing its own rules for the sector.
"The law is a very good step in the right direction, but there are still many challenges to tackle. The first benefit is that Saudi households will have the ability to borrow funds at a longer term of 15-20 years," Baothman said.
"The only problem is the extremely high prices. Banks do not lend at an APR (annual percentage rate) but at one flat rate that does not decline, so you end up with an astronomical figure."
Baothman added that the law would encourage the formation of several companies to compete with banks in mortgage financing, but this could not happen without an active sukuk market to provide such companies with the liquidity necessary for lending.
"Banks use medium- to short-term deposits to finance mortgage opportunities while companies should have this done through the sukuk market. The Saudi investment market has suffered from excess liquidity - by introducing the sukuk market, the excess liquidity will be utilized as demand is there and it is strong."
Baothman said the first impact of the law would be seen on the real estate development side, not on the financing side, as companies would target the middle-class segment of the market where demand was concentrated. He said companies would develop affordable units that matched the size of loan which these consumers could obtain. This would be around SR1-1.5 million, he added. "Developers will make sure to target this mainstream so they won't buy land at any price. All developers now have a kind of target to deliver and land prices will be corrected by the rise of demand. It was speculative, but now people will start calculating on paper."
Sidra is also looking to expand its investment in Britain's real estate sector through an Islamic Shariah-compliant fund. – Reuters


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