By Sunita Rappai

The Housing Market Before Mortgage Reform

In 2007, owning a home in Saudi Arabia meant one thing: paying the full price in cash. Just 22 percent of citizens were homeowners, with the majority either renting or living with their parents. 

“It was a cash culture,” recalls Walid Almurshed, IFC’s former Country Head for Saudi Arabia. “People would save until they had the full price of a house or buy land and slowly build. Banks avoided real estate lending because of the risks.”

Kenroy Dowers, then IFC’s Housing Specialist, also remembers the scale of the challenge. “There was no dedicated mortgage market. The only housing finance came from the government’s Real Estate Development Fund, which had waiting lists stretching for up to 10 years.” 

With more than half of Saudis under the age of 24 and rapid urbanization, there was a pressing need for entry-level housing. Despite the country’s economic strength, there was no technical know-how to develop a modern housing finance system. 

How IFC Helped Build the Saudi Housing Finance Market

For IFC, the absence of a mortgage market was more than a housing challenge—it was a gap in the country’s financial market infrastructure. Addressing it meant creating relevant institutions, building legal frameworks, and enabling access to capital markets.

Drawing on its global experience in markets from Mexico to India, and responding to a request from the Saudi government, IFC worked closely with the central bank to lay the groundwork for a mortgage market, and maintained an active dialogue with banks, developers, and other stakeholders.

The turning point came when Dar Al-Arkan Real Estate Development Company, the nation’s largest residential developer, found its plans for large-scale housing communities stall due to limited financing options for buyers. 

To break this bottleneck, IFC, with Saudi government backing, partnered with Dar Al-Arkan and Arab National Bank to establish Saudi Home Loans (SHL) in 2007—the Kingdom’s first private-sector mortgage finance company. IFC committed up to SAR 100 million ($27 million) in equity and brought in India’s Housing Development Finance Corporation to provide essential expertise in credit risk management and operations. 

The strategy was multifaceted—building a primary housing finance institution from scratch, advocating for a modern mortgage law with government support, and introducing Sharia-compliant mortgage products consistent with Saudi religious values—all while mobilizing private capital from banks and developers.

By tapping capital markets for long-term funding through corporate bonds and mortgage-backed securities—including Saudi Arabia’s first-ever securitization of housing finance assets with Dar Al-Arkan—SHL helped spur the development of the Kingdom’s debt markets, providing a model for how access to capital markets can sustain housing finance.

What Impact Did the Mortgage Market Have on Home Ownership?

IFC’s investment and technical support marked a turning point. SHL proved Sharia-compliant housing finance could succeed, pioneered capital markets solutions, catalyzed regulatory reform, and attracted new private players to the sector. 

Home ownership surged from 22 percent in 2007 to 60 percent by 2020. The boom accelerated urbanization, boosted different industries such as construction and value-added manufacturing, including furniture and materials, and supported economic diversification.

By 2030, an estimated 70 percent of Saudis are expected to own their homes—a dramatic transformation in just one generation.

Almurshed explains the cultural shift: “It was a completely new idea—you no longer had to wait years to own and live in your own home. It made it possible for so many Saudis to buy their first house, start families, and move out from their parents’ homes. It changed lives.”

Alignment with Saudi Vision 2030

SHL’s success also dovetailed with Saudi Arabia’s Vision 2030, which emphasizes higher homeownership, economic diversification, and a vibrant private sector. 

By 2022, SHL had become a major market player, gone public, and set the stage for other companies to enter the sector. IFC exited following the company’s successful $423 million IPO, having fulfilled its mission to deliver lasting, systemic change. 

As Dowers notes, “It was true market creation and a forerunner of IFC’s broader Creating Markets strategy. We developed Sharia-compliant housing products instead of conventional mortgages and created a capital markets solution. The combination of a committed sponsor and IFC’s expertise made it work.”

Almurshed adds: “I’m proud because we helped establish a strong company, created the market, and helped thousands of families own homes.”

According to the Saudi Central Bank, total outstanding real estate loans by commercial banks reached about SAR 965 billion ($257 billion) in October 2025, with retail mortgages making up the majority. In the same month alone, banks issued over SAR 13.5 billion ($3.6 billion) in new residential mortgage financing for individuals.

Fawaz Bilbeisi, IFC’s Regional Manager in Saudi Arabia, Iraq, and Syria sums it up: “The Saudi journey showed what’s possible when commitment meets capability and IFC joins forces with the public and private sectors. 

“We’re now applying this know-how to create similar markets in other emerging economies, using pre-investment services, bankability enhancements, and de-risking tools like guarantees and blended finance. We are also helping channel Saudi private capital into cross-border initiatives that establish local companies as global leaders who scale impact well beyond the Kingdom’s borders.”