DIFC chief economist claims securitisation to grow 100-fold in the next two to three years.
Gulf Arab firms could raise as much as $250 billion in asset-backed securities by 2010 to meet surging demand for property and infrastructure finance, the Dubai International Financial Centre (DIFC) said.
About $2.5 billion of mortgage- and asset-backed debt has been sold in the Middle East and North Africa so far, said Nasser al-Saidi, chief economist at the Dubai government-owned financial centre authority.
A pipeline of more than $1 trillion of projects in the Gulf alone could boost that 100-fold, he said.
"Securitisation will be the fastest-growing debt market of them all," Saidi said in an interview in Dubai on Sunday. "It has the potential to be worth $200 billion to $250 billion in the next two to three years," he said of the Gulf, the world's largest oil exporting region.
The DIFC is a financial centre Dubai set up in 2004 offering regulations that meet international standards and 100% foreign ownership that have attracted banks such as Morgan Stanley to the Emirates.
Securitisations allow companies to package assets, such as loans, and sell them to investors to transfer risk from their balance sheets.
In the case of banks and mortgage companies, this would free them to lend more, allowing them to tap housing-finance markets growing at 25% a year in the region, Saidi said.
"The potential for a proper real estate and housing finance market which would have to be securitised is huge," Saidi said. That would help banks and other lenders diversify risk, he said.
The mortgage market in the UAE, the second-largest Arab economy, is expected to grow 52.5% to 17.5 billion dirhams ($4.77 billion) this year, Dubai-based mortgage lender Tamweel said in February.
The real estate industries in Abu Dhabi and Dubai, the two biggest emirates in the UAE, have surged since they allowed expatriates to invest in properties; Dubai in 2002 and Abu Dhabi in 2005.
Tamweel and local rival Amlak Finance, which offer mortgages that comply with Islamic law, are also venturing into Saudi Arabia, which will need more than 200,000 residential units per year to meet demand, according to Tamweel.
The two firms have said they plan to sell around $300 million each in asset-backed securities to help finance growth.
Gulf property developers could also turn to securitisation of rental properties to free up funds for expansion, Saidi said.
"Securitisation will allow companies like Emaar to remove risk from their balance sheets," Saidi said.
Dubai-based Emaar Properties is the largest Arab real estate developer by market value and is managing about $100 billion of projects in 16 countries, including the US, where it operates John Laing Homes.
Gulf Arab companies could securitise infrastructure projects, while banks could use securitisation for car loans, credit cards and other consumer finance products, Saidi said.
The UAE's first securitisation was a $350 million bond sold in 2005 by Emirates National Securitization. The bond was backed by a cash deposit and so is not considered a real securitisation.
Banks are also beginning to turn to securitisation to free up funds for real estate financing and infrastructure.
Qatar Islamic Bank, the Gulf's fourth-largest Islamic lender by market value, said earlier this month it was planning the first securitisation by a bank in the Middle East.
HSBC last month began presentations to sell what it says are the first mortgage-backed bonds in the Middle East to raise $67 million for a commercial tower in Dubai.