Last week, it was revealed that Saudi Arabia plans to spend $32bn (SAR120bn) on subsidised home loans for borrowers, in order to expand the private sector’s role in a mortgage market that has traditionally been dominated by the government.

The kingdom’s new housing programme, announced on 5 February, 2018, also includes a $4.8bn (SAR18bn) loan-guarantee programme to boost access to funding, and $3.4bn (SAR12.5bn) to support home down-payments, to be spent in the period to 2030, Saudi Arabia’s Housing Minister, Majed Al-Hogail, told Bloomberg.

Saudi Arabia – through increased private-sector participation – is reportedly eyeing the expansion of its mortgage market by more than 70%, taking its value to $133.85bn (SAR502bn) by 2020. The government currently provides 65% of home loans in the country, but the housing minister said a revamp was underway, adding: “We want to change that completely. It is a very generous programme. It [will enable] the private sector, reducing [its] risk to a certain level.”

The latest financial package is one of many steps being taken by the kingdom in its efforts to meet its goal of raising home ownership by citizens.

Al-Hogail said that authorities were hoping to raise home ownership among Saudi citizens to 60% by 2020. In that light – and encouragingly – the latest funding programme appears to be part of a long-term strategy that the kingdom has been preparing for a while. For instance, Saudi Arabia’s sovereign wealth fund, chaired by the Crown Prince of Saudi Arabia, Mohammad Bin Salman, formed a company last October to help meet some of the objectives related to the country’s residential sector.

The Public Investment Fund (PIF) established Saudi Real Estate Refinance Company (SRC), which PIF said would work to improve the performance of the kingdom’s real estate sector, as well as its contribution to the country’s gross domestic product (GDP). SRC was launched in partnership with the Ministry of Housing and under the chairmanship of Al-Hogail.

Demand for property finance in the kingdom is expected to rise from $74.7bn (SAR280bn) in 2017 to $133.3bn (SAR500bn) in 2026. SRC is expected to refinance up to $20bn (SAR75bn) in the kingdom’s real estate sector during the next five years.

As part of its mandate, SRC “will act as an intermediary access point for investors”, Saudi’s state news agency, SPA, revealed at the time of the company’s launch.

Commenting on the kingdom’s latest $32bn package, Al-Hogail said that the government would “monitor conditions” and review its policies “to ensure there is no bubble” in the housing sector.

“When you launch a very strong programme like this, you expect [that] the price could increase,” the minister explained.

“You could expect more defaults, because you are lending to people who don’t have steady income.”

Knight Frank, in its Saudi Arabia Residential Market Review, released last week, stated that the residential market across Saudi’s main cities started decelerating in 2016, a slowdown that continued in 2017. It added:  “In recent quarters, we have seen [...] residential real estate prices have flattened, which could be an indication that the market has bottomed out and may be close to stabilising following a year of rapid decline.”