Deutsche Bank has launched a Sharia-compliant mortgage joint venture in Saudi Arabia in anticipation of of a surge in housing demand in the kingdom. Deutsche Gulf Finance, which has an initial capitalisation of about US$110 million (Dh404m), will be 40 per cent owned by the German bank's Riyadh branch, with the remainder held by a group of Saudi-based investors.
It will focus on Saudi Arabia, but has plans to expand into Bahrain, Qatar and Kuwait. The new company has started financing completed units, as well as those still under construction. Investment opportunities are opening up in the kingdom's property market as homes are built for the country's rapidly rising population. The German bank's research suggests Saudi Arabia will need 1.2 million more homes by 2015.
Lenders and investors are anticipating the enactment of a new mortgage law, which is expected to stimulate the low and middle-income sectors by making it easier for Saudi nationals to own their own homes. Only one in five Saudi citizens owns a home. Deutsche Bank estimates that the legislation will trigger new demand of about 55,000 units a year. "Deutsche Gulf Finance will benchmark itself against international best practices and looks forward to contributing to the growth of home ownership in Saudi Arabia," said Fahad al Rajhi, the lead Saudi investor in the new firm.
Improving sentiment on Saudi property contrasts with other parts of the Gulf, such as Dubai, which have been harder hit by a price fall caused by the global financial crisis. A mismatch of supply and demand helped insulate the Saudi property market from sharp price declines seen elsewhere in the region. The UAE developer Emaar, which has been involved in a number of residential and commercial property projects in the kingdom, has predicted sales at its Al Khobar Lakes project in the Eastern province could triple when the new mortgage law is in place.
The commercial property services firm CB Richard Ellis has disputed Emaar's view, saying in a research note this month that the first 2,000 units in the project were targeting upper-income buyers, who do not rely on housing finance. Other international lenders are launching operations in the region. HSBC yesterday became the first international bank to enter Kuwait's retail banking market. It made its debut with its HSBC Premier account, an offering geared to clients with a balance of more than $100,000.
* with reporting by Uta Harnischfeger @Email:firstname.lastname@example.org