For years digital technologies and FinTech have promised customers a lot of innovation but have broadly been unable to penetrate the market due to lack of demand by customers.
However, as the economy shifts from respond to recovery stage of the Covid-19 pandemic, opportunities may be plenty for the digital transformation industry to bloom.
Only six months ago, few people in Saudi Arabia could contemplate buying a house in the middle of a global pandemic, where the world was forced to stay at home to avoid the deadly virus. Even everyday chores of buying groceries seemed a farfetched idea for most at the height of the pandemic.
However, lending rates around the globe were at historic lows, which meant that getting a mortgage was very cheap, and such rates would not last forever. With no end in sight to the Covid-19 pandemic, people were unable to take advantage of the low lending rates currently in Saudi Arabia and all they could do was wait for the pandemic to pass.
Surprisingly, mortgages uptake began to rise a few months into the pandemic in Saudi Arabia with September registering new mortgages take out of 27,889 loans, a historical high in the kingdom, representing a year-on-year increase of 66 percent. This baffles both mortgage providers and policymakers.
How were people managing to buy homes during a period hampered with lockdown and other restrictions?
The answer was something that should have been foreseen – technology had come to the rescue again. People were taking a virtual tour of properties on their phones, negotiating with his bank over a Zoom call to provide them with the best lending rate and completing mortgage transactions with the least amount of trips to the bank or the property.
The power of digitisation had finally struck the real estate financing industry. I have always been an advocate for digital banking due to the convenience aspect but buying a house using digital technology was something I could not fathom.
Mortgages uptake began to rise a few months into the pandemic in Saudi Arabia with September registering new mortgages take out of 27,889 loans
While my inclination towards digital banking was due to convenience, digital transformation has today become a necessity rather than just an option.
As the pandemic began, fewer people were opting to go to shops to buy everyday items while some started to postpone larger value buys such as homes and cars due to being unable to physically see the item. The answer to this hesitation to buy products is simply digital transformation – and when you think about it, there are very few things that cannot exist in the virtual world.
We have already seen this in the UK, where retail demand is nearly back to pre-Covid-19 levels, thanks to the void filled by FinTech companies through their offerings. In the US, data from the Fidelity National Information Services noted a 200 percent rise in new mobile banking registration in April alone, while mobile banking traffic rose by 85 percent during the month.
Another study by a Fintech company found that only 40 percent of banking customers expect to return to bank branches after the pandemic, clearly pointing to the transformation in behaviour the pandemic will bring about.
As I started to observe such trends closely, I noticed that at home, my family has been ordering food and nearly everything from online applications that deliver the necessities to your doorsteps within hours of ordering.
From young to old, everyone is seemingly adopting digital solutions as there is little you can do without it during Covid-19 lockdowns.
Real estate companies can promote homeownership in the kingdom and encourage people to buy homes when interest rates are attractive
As digital transformation catches pace, we will see a similar rise in mortgage uptakes in the kingdom, as people begin to adapt to the new normal. In fact, we are witnessing a rise in mortgages already – SAMA’s report for Q3 2020 shows a staggering 90 percent growth in mortgages registered year-on-year with 208,505 residential mortgage loans being sanctioned in Saudi Arabia valued at more than SR96.7 billion.
This rise in demand can also be attributed to prudent initiatives by SAMA and MoH that are facilitating affordable mortgages and simpler processes in the kingdom.
For instance, the government recently announced that property deals in the kingdom will be exempt from the 15 percent VAT imposed from June this year, which has had a direct impact on the mortgage uptake numbers in Q3 this year.
This follows a series of consistent initiatives by the government to achieve the Vision 2030 of improving home ownership in the kingdom. These initiatives are also expected to be enablers of digital technology adoption as with rising demand, the services industry must step up to provide customers with the tools they need to complete transactions.
As we move towards the end of the pandemic, the financial sector will continue to increase paperless transactions where people are able to do most transactions such as getting a mortgage or opening a new bank account using a mobile app.
Using these tools, real estate companies can promote homeownership in the kingdom and encourage people to buy homes when interest rates are attractive.
These companies can use a variety of digital applications such as 3D modelling and virtual tours to showcase their products to customers who are unable to visit the properties physically.
Such innovations can even improve the real estate sector demand and offerings by helping real estate developers reach audiences even outside larger cities of Riyadh and Jeddah and help them own properties in these locations.
At Saudi Real Estate Refinance Company (SRC), we are working with banks and other mortgage finance companies to provide customers with seamless experience in the future when buying a new home or refinancing their existing mortgage that has digital transformation at its core.
These customers will be able to safely access their options to buy or refinance homes virtually and we are working to ensure that these transactions will require little to no physical activity.
It also raised an important viewpoint about opportunity during Covid-19. Due to the negative economic effects of the pandemic, there are some excellent opportunities available in the market and customers are always in the hunt for such bargains. If corporate services are able to provide them with this, we can possibly see an uptake in demand return sooner than later.
With the homeownership rates in the kingdom steadily improving, the opportunity with digital transformation in the real estate sector in particular, is limitless.
We only need to move ahead on that path and will see the several exciting opportunities shape up the future of home financing in the kingdom.
Fabrice Susini is the CEO of Saudi Real Estate Refinance Company
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