Mortgage securitization boosts liquidity, cuts costs: Experts

Saudi Real Estate Refinance Co. (SRC) launched the first-ever residential mortgage-backed securities (RMBS) transaction as part of a local securitization program to strengthen the real estate mortgage market.

It explained that a securitization transaction — which results in residential mortgage-backed securities — provides investors with unique opportunities to invest in assets with high credit quality and medium-term maturities.

Experts told Argaam that the launch of the first residential mortgage-backed securities program marks a milestone in developing real estate financing instruments in Saudi Arabia, by enhancing liquidity, expanding bank lending capacities, and reducing costs for individual. It also introduces a new investment instrument that deepens the capital market and enhances its diversification. 
 

A milestone to strengthen real estate financing in the local market
 

Mohammed Al-Khars, Chairman of INNOVEST Properties

Mohammed Al-Khars, Chairman of INNOVEST Properties, told Argaam in an exclusive statement that the Saudi Central Bank’s (SAMA) approval to launch the first mortgage-backed securities program marks a new phase in the development of real estate financing tools in the Kingdom.
 

He noted that the move will have long-term positive impacts on both the financial and real estate sectors, supporting sustainable growth and expanding the financing base.
 

Faris Alqahtani, Head of Research at Sukuk Capital

Faris Alqahtani, Head of Research at Sukuk Capital, explained that securitization is the process of converting illiquid assets, such as mortgages, into tradable securities that can be sold to investors, thereby providing banks and financing institutions with a means to sell their assets and recycle liquidity.
 

About the the impact on the cost of mortgage financing, he said it will help boost liquidity and money supply, as selling assets through securitization enhances liquidity for banks and financing institutions and boosts their lending capacity. This, in turn, increases competition for mortgage lending and ultimately lowers costs for customers.
 

Securitization will also strengthen the developmental role of SRC, being a government-owned entity under the Public Investment Fund (PIF). SRC operates with developmental goals rather than purely commercial ones. When repurchasing existing loans from banks, it sets conditions that ensure cost savings are passed on to customers, thereby easing the burden of home finance on families, Alqahtani added.
 

For his part, Al-Khars explained that securitization is the process of converting long-term mortgage loans into tradable securities that are sold to investors in exchange for future cash flows.
 

This mechanism enables banks and financing companies to unlock the liquidity tied up in loans and recycle it, which contributes to lowering the cost of mortgage financing for individuals. He expected this to benefit borrowers through access to home loans at lower interest rates, as the cost of funds decreases for financiers.

Expanding Banks’ Lending Capacity

Al-Khars explained that securitization enables banks to sell part of their financing portfolios and convert them into instant liquidity. This liquidity can then be reinvested into new loans, effectively doubling the financial sector’s capacity to meet the growing demand for housing finance.

“From our experience at Innovest Properties as developers, we see that any expansion in banks’ lending capacity directly translates into higher demand for housing units, which in turn encourages developers to launch more projects,” he noted.

 Alqahtani also highlighted that securitization will significantly expand the capacity of banks and financing companies to provide new loans, as it frees up liquidity and recycles it into additional financing.

However, he noted that this largely depends on the SRC's ability to attract funding through its issuances, as well as foreign investors’ appetite for purchasing its sukuk and their interest in exposure to the Saudi real estate market.
 
A New Investment Instrument in the Saudi Capital Market

 Al-Khars pointed out that securitization introduces a new investment instrument to the capital market—mortgage-backed securities (MBS). These securities typically attract institutional investors such as pension funds, insurance companies, and investment funds due to their backing by stable assets and long-term cash flows.

He emphasized that the entry of such instruments deepens the Saudi capital market and boosts both local and international investor confidence.

Meanwhile, Alqahtani said securitization brings a new tool to the Saudi financial market: securities backed by mortgages. These securities are structured from existing mortgage loans and divided into tranches based on varying levels of risk and return.

He explained that investors can choose a safe tranche with lower returns or a higher-risk tranche with higher returns. This offers investors wide flexibility in risk management and broadens the depth and diversity of financial market instruments, similar to practices in advanced global markets.

Securitization Paves the Way for an Active Secondary Market

Al-Khars said a secondary market for mortgage-backed securities will foster a more dynamic investment environment and support the stability of the financial and real estate system. It will also position Saudi Arabia as a leading regional financial hub with modern and diversified investment tools.

Alqahtani added that securitization is expected to stimulate the establishment of an active secondary market for MBS, as these instruments can be resold and traded among investors after the initial issuance. This enhances liquidity and makes them more attractive.

He also noted that global experiences, such as Fannie Mae and Freddie Mac in the US, have demonstrated the success of this model in building a strong and efficient secondary mortgage market.

Strict Regulations Limit Securitization Risks and Prevent a 2008-Style Crisis

Addressing concerns about repeating real estate crises associated with securitization, Al-Khars stressed that risks in Saudi Arabia are limited and managed under strict regulations by the central bank. Moreover, demand for housing finance is driven by genuine needs of first-time homeowners.

He emphasized that the Saudi experience is fundamentally different from the 2008 US financial crisis, which was rooted in misuse of financial instruments and weak oversight. In contrast, securitization in Saudi Arabia is supported by real, high-quality property assets.

Alqahtani added that securitization alone does not cause real estate crises. The 2008 global financial crisis was not triggered by securitization itself but by a combination of factors—excessive high-risk lending, weak regulatory oversight, and overly complex financial products—that all came together simultaneously. Thus, the relationship is not directly causal.

He pointed out that securitization has existed in the US and globally since the 1970s and has not consistently led to crises, except when accompanied by unusual external factors.

He concluded that Saudi Arabia’s situation is very different: residential mortgage levels remain very safe relative to GDP, at around SAR 700 billion, representing about 30% of GDP. By comparison, during the 2008 crisis in the US, residential mortgages accounted for roughly 75% of GDP. This highlights that the fundamentals of the Saudi market are stronger, and systemic risks are significantly lower.