Central to these efforts and playing a pivotal role in the real estate and housing sector is the Saudi Real Estate Refinance Company (SRC). Established in 2017 and fully owned by the Public Investment Fund (PIF), SRC was licensed by the Saudi Central Bank to operate in the secondary real estate market with the primary goal of contributing to the transformation of the local housing market. As a key market player, SRC plays a vital role in supporting economic development in Saudi Arabia by injecting liquidity into the secondary real estate market through the acquisition of housing real estate funds and issuing Sukuk, driving sustainable economic growth in the Kingdom.
SRC supports market liquidity and provides capital and risk management solutions to originators and financiers to increase home financing affordability and Saudi citizens’ access to homeownership. Its strategic partnerships with top banks in the Kingdom, provide access to a diverse range of innovative home financing solutions, enabling the company to better serve the needs of Saudi homebuyers. To date, SRC has injected SAR 50 billion of liquidity in the market through its refinancing agreements and short-term facilities. In March 2023, SRC signed a portfolio purchase agreement with Alrajhi Bank worth SAR 5 billion, the largest of its kind in the Saudi banking industry. SRC's refinancing agreements with major banks in the Kingdom increase origination of new mortgage assets, making home financing more accessible and affordable.
SRC is a constant Sukuk issuer, supporting the financial sector development by offering alternative financial solutions to ensure availability of new sources of financing and attracting local and international investments to the real estate sector. In October 2022, the total size of its Saudi-Riyal denominated Sukuk program was doubled from SAR 10 billion, to SAR 20 billion. By May 2023, SRC marked the sixth tranche of its SAR 3.5 billion Sukuk issuance under its upsized SAR 20 billion Sukuk program. As a constant Sukuk issuer, SRC supports the development of the domestic capital market and diversify funding sources for the real estate sector in Saudi Arabia. By attracting local and international investment to the real estate sector through its Sukuk issuance, SRC is helping to create jobs, stimulate economic activity, and contribute to the overall development of the Saudi economy.
One sector that stands to be very positively impacted by the demographic trend Saudi Arabia is witnessing, is the real estate market. The increasing youth population will create a demand for housing. This surge in demand presents both challenges and opportunities for developers, originators, and financial institutions. While this uptick in demand underscores the vast potential in the market, it also inspires developers, originators, and financial institutions to rise to the occasion. Vision 2030, with its key pillars like the Housing Program and the Financial Sector Development Program, is a testament to the Kingdom's proactive approach. By streamlining regulations, these reforms create an opportunity to attract investments into untapped sectors, promoting economic diversification, further positioning the Kingdom as a prime investment destination, ensuring a sustainable and diversified economic future.
SRC has addressed the growing population and youth demographic by introducing innovative solutions like the long-term fixed rate (LTFR) that contributes to seamlessly addressing many of the challenges in the real estate market. The LTFR is crucial as it provides protection from volatility and economic headwinds in the wider mortgage market, shielding individuals from rising finance costs. Recognizing the needs of the younger generation, SRC extended their LTFR from 25 years to 30 years, accommodating more people by offering consistent, longer, and smaller repayments. This move better incentivizes the youth population for home ownership by increasing the availability of fixed-rate mortgages and encouraging fairer pricing. With SRC's proactive initiatives, the current home ownership rate at 60% is set to reach the housing program target of 70% soon.
As Saudi Arabia embarks on a transformative journey, its strategic initiatives and economic reforms signal a promising future. There are multiple impacts from the substantial growth, including an increasing youth population and its subsequent connection with the demand for real estate. Fortunately, there has been an abundance of answers to the challenges that have appeared, and Saudi companies like SRC are well positioned to support and benefit from the reforms that have become widespread. Looking ahead, the future in Saudi Arabia remains ripe with opportunity, and the targets set by Vision 2030 are well on the way to be achieved. With a focus on diversification, innovation, and sustainable development, bolstered by institutions like SRC, the nation is poised to take its place as a global economic powerhouse.
