RIYADH: º£½ÇÖ±²¥ has a large market opportunity for residential mortgage-backed securities, anchored by $180 billion in home loans and a well-capitalized, profitable banking sector, says S&P Global Ratings.
The launch of the first RMBS deal in August by state-owned Saudi Real Estate Refinance Co., or SRC, follows a surge in mortgage lending, a trend driven by the government's housing push under its Vision 2030 reform plan.
The effort comes as authorities aim to increase the national homeownership rate to 70 percent by 2030, a goal that is fueling robust mortgage demand and significant expansion of bank balance sheets.
S&P’s new note, published as a Credit FAQ rather than a rating action, outlines why momentum is building and what investors will scrutinize, from legal isolation of assets and servicing arrangements to deal mechanics, as RMBS begin to take shape.
“The market opportunity is substantial, in our view, as Saudi banks currently hold a mortgage portfolio valued at approximately $180 billion, representing 23 percent of the total loans in the banking sector, at the end of 2024,†S&P said.
The agency also noted the Kingdom’s strong banking sector capitalization, with a regulatory capital ratio of 19.6 percent as of Dec. 31, 2024.
“We note that the contribution of hybrid instruments has been increasing over the past few years, though. Banks display good asset quality indicators, they are profitable, and their funding profile remains healthy,†S&P added.
The call comes alongside S&P’s A+ stable sovereign rating and a 3.5 percent medium-term gross domestic product growth outlook, which together underpin investor appetite.
By the end of the second quarter, total real estate loans reached SR932.8 billion ($248.7 billion), with loans to individuals making up about 76 percent of the total, according to data from the Saudi Central Bank, or SAMA. This figure includes commercial real estate loans as well, while the $180 billion estimate reflects the residential segment alone.
Retail real estate loans have climbed over 550 percent since 2016, SAMA data shows. While this surge signals robust, policy-driven housing demand, it has also tightened liquidity, prompting banks to look beyond deposits and plain-vanilla debt for funding.
The securitization channel S&P highlights focuses solely on packaging home loans, not offices or malls. Expanding mortgage finance is now seen as critical to achieving Vision 2030’s goal, while securitization offers a repeatable, domestic mechanism to channel long-term funds into the mortgage market.
To address this, policymakers established SRC to buy and refinance mortgages, clearing the path for a secondary market and, eventually, securitization.
That moment arrived in August, when SRC launched the Kingdom’s first RMBS transaction, following SAMA’s no-objection approval on Aug. 21.
Housing Minister Majid Al-Hogail, SRC’s board chair, called the debut “a strategic step toward developing º£½ÇÖ±²¥â€™s real estate finance market and enhancing its appeal to both domestic and foreign investors,†adding that it would improve liquidity, broaden the investor base, and help lenders manage capital and risk more efficiently.
In parallel, recent policy changes — most notably the new foreign-ownership law set to take effect in January 2026 — are expected to widen the potential investor universe.
Elias Abou Samra, CEO of Rafal Real Estate Development, said packaging home loans into standardized, investable securities will broaden the investor base and deepen liquidity, especially as foreign participation opens up.
He noted that “inquiries from international investors rose tremendously†after the law was announced, and expects these shifts to lift demand for asset-backed instruments while improving transparency, efficiency, and global integration in the market.
SRC framed securitization as opening “attractive investment opportunities in high-credit-quality assets with medium-term maturities,†positioning RMBS as a new asset class that deepens capital markets and diversifies instruments available to local and international buyers.
S&P described the debut as a milestone that “could potentially pave the way for further issuances,†particularly as legal standards solidify and investors gain confidence in deal performance.
For banks, securitization provides headroom to recycle capital into fresh lending, diversify funding, and attract new types of investors, thereby deepening º£½ÇÖ±²¥â€™s capital markets. Even a modest share of the $180 billion residential mortgage pool converted into RMBS would create sizeable opportunities for both local and foreign buyers.
What are RMBS
Simply put, securitization groups together similar loans — such as home mortgages, auto loans, or corporate receivables — and turns that pool into tradable asset-backed securities that investors can buy. The borrowers’ monthly payments are then used to pay interest and principal on those securities.
To protect investors, the originating lender typically sells the loans to a separate legal entity called a special purpose vehicle in a true-sale transaction. This isolates the assets from the lender’s financial troubles, so the bonds are evaluated mainly on the quality of the loan pool and the structure of the deal, rather than the bank’s balance sheet.
Deals often include layers of protection — for example, senior and junior tranches — ensuring the safest bonds are paid first.
The August transaction in º£½ÇÖ±²¥ is an RMBS, meaning bonds supported by home loans to individuals. By turning thousands of ordinary home loans into tradable bonds, lenders can recycle capital into new mortgages, while investors gain access to asset-backed cash flows at varying risk and return levels.
What it is not — yet
Loans tied to companies or income-producing properties, such as offices, malls, or warehouses, are generally packaged as asset-backed securities backed by corporate receivables or as commercial mortgage-backed securities.
Because º£½ÇÖ±²¥ has few securitization precedents, the legal and regulatory framework remains a key factor. S&P noted historical uncertainty around the insolvency remoteness of issuing vehicles, which has slowed development. However, “feedback from the market indicates some progress,†and greater clarity is anticipated.
S&P expects case-by-case assessments, supported by third-party legal opinions, with regulators playing an active role in shaping a framework attractive to international investors. The stability of the Saudi riyal should also support investor confidence.
The rating approach will largely mirror developed RMBS markets, with benchmarking to peers until local performance histories deepen. The analysis spans the credit quality of the loans, legal and regulatory risks, operational and administrative risks, counterparty exposures, and cash-flow mechanics.
If SRC’s debut prices smoothly and performs as expected, S&P says it could pave the way for follow-on issuances, deepen domestic capital markets, and provide banks with a reliable channel to match-fund long-term mortgages, reducing reliance on deposits.
The August deal is just the beginning; if the legal framework and data standardization continue to improve, RMBS could become a regular funding tool and, later, open the door for other Saudi asset classes to follow.
