Saudi Arabia Launches First Residential Mortgage-Backed Securities

Saudi Arabia has made a significant leap in its financial sector by issuing its first-ever residential mortgage-backed securities (RMBS), a move orchestrated by the Saudi Real Estate Refinance Company (SRC), which is owned by the Public Investment Fund. This inaugural RMBS transaction is part of a broader local securitization program designed to strengthen the Kingdom’s real estate mortgage market and align with the ambitious goals of Saudi Vision 2030.

Strategic Move to Deepen Capital Markets

The launch of the RMBS comes as Saudi banks hold a massive mortgage portfolio, valued at approximately $180 billion by the end of 2024, accounting for nearly a quarter of all loans in the banking sector. The new RMBS instrument is expected to boost liquidity in the financial system, expand the capacities of banks to lend, and reduce costs for homebuyers by introducing innovative financing tools. According to industry experts, the move not only diversifies the Kingdom’s capital markets but also provides investors with new opportunities to invest in high-quality, medium-term assets. The RMBS are structured in tranches, allowing investors to select their preferred balance of risk and return, a model familiar in more developed markets.

Implications for the Real Estate and Financial Sectors

The introduction of mortgage-backed securities is anticipated to catalyze the development of a secondary market for these instruments, creating a more dynamic and liquid investment environment. This is expected to foster greater stability in the financial and real estate sectors, and position Saudi Arabia as a regional financial hub. The Saudi Central Bank’s approval of the program signals regulatory confidence in the maturity and transparency of the Kingdom’s investment environment. The SRC emphasized in its official press release that the transaction was executed under stringent regulatory frameworks, aiming to reinforce investor confidence and support the long-term stability of the financial sector.

While specific financial details of the transaction were not disclosed, the launch is widely regarded as a milestone for the Kingdom, which is the first Gulf nation to embark on such an initiative. The move is seen as directly supporting the Vision 2030 objective of raising homeownership rates, with the government aiming for 70% homeownership. Experts highlight that the success of similar securitization programs in markets like the United States, through entities such as Fannie Mae and Freddie Mac, has contributed to efficient secondary mortgage markets and more accessible home financing.

However, the expansion of mortgage-backed securities also introduces new risks, as seen in other global markets during periods of financial stress. The Saudi authorities and SRC have underscored their commitment to robust regulatory oversight and transparent controls to mitigate such risks. The development of the RMBS market is expected to attract both local and international investors, further diversifying funding sources for Saudi banks and supporting sustainable growth in the broader economy.