The mortgage industry in the Middle East is poised for “long-term sustainability” as it shifts from a developer market to a mortgage provider market, the CEO of leading home finance company Tamweel has said.
Adel Al Shirawi told a Saudi Arabia housing finance conference in Riyadh that he forecasted “long-term sustainability” in Middle East real estate mortgage industry. Comparing the role of banks with mortgage providers, Al Shirawi explained that banks were “heavily dependent” on deposits growth, which grow at a slow pace with average tenures of three to five years.
“In comparison, mortgages need long-term money with average tenures of 15 to 20 years, and securitisation of assets and inflow of foreign investments will address these requirements. This will lead to a tectonic shift where the real estate market will evolve from mainly being a developer market to a mortgage provider market.”
“The size of the real estate market is twice the aggregate banking balance sheet in the region, driven by the faster growth in assets than in deposits.
Mortgage providers are also better equipped to absorb market fluctuations beyond six months, unlike banks which replicate interest rate movements on a monthly basis,” he added.
He observed that in countries like the UAE, where pure mortgage players dominate 60-70% of the market, the average profit rate is 8.5%. In comparison, profit rates are over 10-12% in Middle East markets dominated by bankers, such as Egypt and Kuwait.
Al Shirawi estimated that the mortgage market was set to capture 11% of the UAE’s GDP in the next five years, driven by the US$817bn development projects already announced.
In 2006, the UAE retail real estate market touched US$4.8bn (AED17.5bn), 65% of which (AED11.5bn) was mortgage financed.
In order to sustain this favourable growth and meet the needed funding requirements, Al Shirawi stressed the acute need for securitisation of assets and at the same time bringing in foreign investments.
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