Tamweel CEO forecasts long-term sustainability in Middle East real estate mortgage industry

Adel Al Shirawi made these comments in an address at the Euromoney Saudi Arabia Housing Finance Conference, which was held recently in Riyadh, Saudi Arabia.

Comparing the role of banks with mortgage providers, Al Shirawi explained that banks are heavily dependent on growth in deposits, which grow at a slow pace with average tenures of 3-5 years. He said: "In comparison, mortgages need long term money with average tenures of 15-20 years, and securitization of assets and inflow of foreign investments will address these requirements. This will lead to a tectonic shift wherein the real estate market will evolve from being a developer market to a mortgage provider market."

He added: "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 observed that in countries like the UAE, where pure mortgage players dominate 60-70 per cent of the market, the average profit rate is 8.5 per cent. In comparison, profit rates are over 10-12 per cent in Middle East markets dominated by bankers, such as Egypt and Kuwait.

Citing the example of the UAE, Al Shirawi estimated that the mortgage market is set to capture 11 per cent of the GDP in the next five years, driven by the AED 2 trillion projects already announced. In 2006, the UAE retail real estate market touched AED17.5 billion, 65 per cent of which (AED11.5 billion) was mortgage financed. In order to sustain this growth and meet the funding requirements, Al Shirawi stressed the acute need for securitization of assets and bringing in foreign investments.

Al Shirawi spoke on a panel discussion titled, "Funding Residential Finance Lending." Other speakers on the panel discussion included Khalid Howladar, Moody's Investors Service; Azizi Ali, Cagamas Berhad; George S. Anderson, Guidance Financial Group; and Ravi Takhar, Investec Bank.