REGA Real Estate Finance 2

Question 1

What is a Real Estate Investment Traded Fund (REIT) in the Saudi market?

Accepted Answer

A publicly traded fund on Tadawul that invests in income-generating real estate and distributes at least 90% of net income

Answer

Saudi REITs are closed-end funds listed on Tadawul that must invest at least 75% of assets in developed income-generating real estate. They must distribute 90%+ of net income annually, providing investors with regular rental income exposure.

Question 2

What is the debt service coverage ratio (DSCR) and why is it important in real estate finance?

Accepted Answer

The ratio of Net Operating Income to total debt payments, indicating the property's ability to cover its debt obligations

Answer

DSCR = NOI ÷ Annual Debt Service. A DSCR above 1.0 means the property generates enough income to cover debt payments. Lenders typically require a minimum DSCR (e.g., 1.25) to ensure adequate debt coverage.

Question 3

What is a Diminishing Musharaka in Saudi real estate financing?

Accepted Answer

A partnership where the bank and customer jointly own the property, with the customer gradually buying the bank's share

Answer

In Diminishing Musharaka, the bank and customer jointly purchase the property. The customer makes periodic payments to buy the bank's share while paying rent on the bank's portion. Over time, the customer becomes the sole owner.

Question 4

What factors do Saudi banks consider when evaluating a mortgage application?

Accepted Answer

Income, employment stability, existing debt obligations, credit history (SIMAH score), and property value

Answer

Saudi banks evaluate multiple factors including monthly income and stability, debt-to-income ratio, SIMAH credit score, employment history, existing financial obligations, the property's appraised value, and the loan-to-value ratio.

Question 5

What is the purpose of a mortgage guarantee or insurance in Saudi real estate?

Accepted Answer

To protect the lender against borrower default by covering a portion of the outstanding loan

Answer

Mortgage guarantee/insurance protects the lender (not the borrower) against losses if the borrower defaults. It enables higher LTV lending by reducing the lender's risk exposure on the uncovered portion of the loan.

REGA Practice Test

REGA Practice Test

REGA Real Estate Finance 2