The Kingdom of Bahrain’s Real Estate Finance company (Reef) has secured $150 million in warehouse financing to bolster its local mortgage lending activities. The facility, provided by Calyon Crédit Agricole CIB, enables Reef to diversify its funding sources. Ultimately, the mortgage portfolio could be used to back a residential mortgage-backed securitization in either an Islamic or standard format.
To date, there have only been a handful of mortgage-backed transactions in the Gulf region. Reefs potential deal would be a first in Bahrain. Last year, Dubais Tamweel completed a $250 million RMBS via Morgan Stanley and Standard Chartered. That deal was backed by a portfolio of 1,000 mortgages. Other regional mortgage originators, such as Qatar Islamic Bank, are also looking at the securitization of their portfolios using an Islamic format. But the market is still in its earliest stages.
New mortgage laws in Saudi Arabia might enable a mortgage market to emerge, partly funded by the private sector, according to research from Standard & Poors. Mortgage growth there will be fostered by the boom in home building as well as from financing the purchase of houses already built and the refinancing of existing homes to fund home improvements or new businesses.
More widely, increasing economic stability, lower interest rates and lower inflation are making mortgages more affordable to a wider customer base. Part of the challenge of fostering a nascent mortgage market is for banks to satisfy the demand for financing while developing efficient market structures. Reefs deal with Calyon is one way of tackling this task.
Bahrains Reef has a roughly $20 million mortgage portfolio, which it intends to grow using the facility from Calyon. The group, established in 2005 to develop Shariah-compliant real estate and mortgage finance solutions, is poised to benefit from the demand for these products in Bahrain.
"There is a huge demand for local housing from residents or expats attracted to the economic opportunities in Bahrain," says Fabio Stupazzini, Calyons managing director and head of emerging markets Middle East and Africa securitization in London. "It will take about a year for Reef to ramp up its portfolio to $150 million."
Stupazzini says Calyon is seeking to forge similar deals with regional lenders. Demand in Abu Dhabi, Kuwait and Saudi Arabia for residential mortgages is growing at such a rate that there are fears there might be a housing shortage not too far in the future.