The Public Investment Fund (PIF), the Saudi finance ministry's investment vehicle, plans to take stakes of up to 40 per cent in new mortgage lenders, industry sources said on Saturday.

PIF, which is already one of the biggest investors in the Saudi stock market, said in March that it plans to venture into mortgage financing in anticipation of a mortgage law expected to come into effect this year.

The new law could open up home ownership to more of the 25 million population in the most-populous Gulf Arab country, less than a third of whom currently owns property.

The low home-ownership ratio is seen by analysts as reflecting some weaknesses in Saudi Arabia's wealth distribution policies.

Finance minister Ibrahim al-Assaf and Mansour al-Maiman, PIF's secretary general, met this week the representatives of Real Estate Financing Co (Refco), a mortgage lender which plans to start offering home loans in 2010.

Two sources who attended the meeting said the government wants to provide mortgage lenders with long-term soft loans to finance their business.

'The PIF will take stakes that can reach 40 per cent in the capital of Refco and other mortgage lenders,' one of the sources said without being more specific. PIF's Maiman could not be reached for comment.

US consultancy Clayton Holdings which advised Refco, estimated that the world's top oil exporter had a housing deficit of 2 million residential units, a figure which was rising by 200,000 a year.

Refco will start with a paid-up capital of 1 billion riyals, of which 600 million will come from the founding private investors and 400 million riyals from institutional investors, board member Abdul-Rahman Mazi added.-Reuters