Real Estate
Ownership of real estate in Saudi Arabia has previously been restricted to Saudi citizens but with the Saudi Vision 2030, legislation has been introduced allowing ownership to GCC nationals and GCC companies, foreigners and international investors subject to restrictions and qualifications.
GCC nationals or entities (fully owned by GCC nationals), may lease or own buildings and lands for residential or investment purposes in any GCC member state, including the Kingdom of Saudi Arabia, through lawful ownership, or by bequest or inheritance. Such persons shall, have the right to such ownership subject to several restrictions and conditions. In relation to the ownership of real estate property in the vicinity of Mecca and Medina, currently, GCC nationals and GCC companies are subject to the rules and regulations that govern Foreign Property Ownership as described below.
The Foreign Property Ownership Regulations dated 17/04/1421 (“FPOR”) (corresponding to July 19, 2000G) states that with the exception of properties within the vicinity of Mecca and Medina, a foreign company, or a foreigner, may:
Lease or purchase land in Saudi Arabia to use it for the purposes of conducting any licensed business activity; and
Own residential property in Saudi Arabia, subject to certain restrictions and conditions.
The Fifth Article of the FPOR states that, except by inheritance, non-Saudis cannot own, use, or benefit from real estate in Mecca and Medina, unless they endow it to a specific Saudi entity according to Sharia law and the relevant regulations. The law defines non-Saudis as natural persons without Saudi nationality, non-Saudi companies, Saudi companies with non-Saudi shareholders or partners, and any other persons or categories designated by the Council of Ministers or the President of the Council of Ministers. The law exempts from this definition banks and real estate financing companies subject to them fulfilling certain conditions and criteria. Listed companies, that have obtained all necessary approvals from the Saudi Capital Market Authority (“SCMA”), may, according to Cabinet decision No: 83 dated 17/09/1442H (corresponding to 29/04/2021G) which amended the FPOR, own property within the vicinity of Mecca and Medina. The Council of Ministers may exempt an entity from the definition of non-Saudi in accordance with rules set for this purpose..
Even the smallest equity interest held by a non-GCC individual or entity will make a corporate entity ‘foreign’, triggering the requirement for a foreign investment licence from The Ministry of Investment Saudi Arabia (“MISA”) (including conditions stipulating the amount of capital that must be invested, and the timeframe for such investment). Saudi Arabia has a strict anti-fronting law, which must be carefully considered when structuring investments through an entity.
Generally speaking, and subject to addressing MISA foreign investment license requirements, a non-GCC company may own Saudi real estate (not in the vicinity of Mecca and Medina, or in zones specifically excluded by royal decree) reasonably required for:
The conduct of its professional, technical or economic activities;
Property development purposes, in case of particular projects;
Private residences for housing employees of a licensed project; or
Residential use by individuals with normal legal residency status.
Non-GCC nationals may also own property in Saudi Arabia, if they have normal legal residency status and the required permits from the Ministry of the Interior which they can apply for through the “Absher” platform, which allows access to a variety of government services. The applicant must have a current valid residency permit in order to submit such application.
Foreign real estate developers are capable of owning and developing properties in KSA, outside Mecca and Medina, by obtaining a foreign investment license issued by MISA. MISA requires that the foreign investor wishing to engage in real estate development activities is to submit a full study of the project, the value of which should not be less than SAR 30,000,000 (development cost and land).
The Saudi government after issuing the Property Rights Registration Law issued by Royal Decree No: (M/6) dated 17/-04/1421H (corresponding to 19/07/2000G) and its implementing regulations initiated the massive and ambitious task of identifying all land and all property interests, in particular parcels of land, within the Kingdom. The system includes information on a real estate register for each designated realty area and is intended to provide an investment-friendly environment, with technically accurate land identities to facilitate property dealings.
Saudi Arabia has laws in place now for land identification, ownership, survey and registration, such as the Law of Real Estate Registration issued by Royal Decree No. M/91 dated on 19/09/1443H (corresponding on 20/02/2022G) . The Ministry of Justice launched the Saudi Real Estate Market (“SREM”) in [ ], through which landowners can not only register their title deeds but also conduct a variety of real estate transactions without the need for a notary public. In practice, the SREM is still relatively new, so transactions will still be conducted through a system that could be compared with a ‘deeds system’, whereby ownership is traced through the various contractual agreements between buyers and sellers, with notaries public completing changes in ownership and recording such details in a register kept by the Ministry of Justice. The practice may vary in different regions, and separate rules will apply in the Economic Cities.
The KSA government created the Real Estate General Authority (“REGA”), which in its organizing regulations issued by a Cabinet Decision No: 239 dated 07/06/1440H (corresponding to 12/2/2019G), mentions that the titling system is under REGA’s authority. Previously, REGA was the only authority in KSA that had the right to hold and issue title deeds for real estate properties in KSA, however it should be noted that the SREM is currently allowing users to research and view information relating to specific properties, including property title deeds, as well conducting various transactions (such as [ ]) which may result in the transfer of title deeds. REGA remains the only authority with the right to suggest amendments to the Property Rights Registration Law issued by Royal Decree No: (M/6) dated 11/2/1423H (corresponding to 5/1/2003G).
There are a number of ‘Economic Cities’ that have been developed and are under development in Saudi Arabia. At the time of writing, these are: the King Abdullah Economic City (Makkah Region, on the West Coast, near Jeddah), the Knowledge Economic City (Medina Region), the Prince Abdulaziz bin Mousaed Economic City (Ha’il Region, in the North of the Kingdom) and the Jazan Economic City (in the South West of the Kingdom).
Regulations have been issued by the Economic Cities Authority for the registration of all foreign companies established in Economic Cities, the registration of all land title deeds in the name of foreign entities established in the Economic Cities, and the issuance of licenses and other approvals to service providers, including district cooling, warehousing and logistics in the Economic Cities. This has facilitated foreign (and local) investors in obtaining relevant licenses.
In 2016, the Capital Market Authority introduced new rules allowing the formation of Real Estate Investment Traded Funds (REITs) on the Tadawul, the Saudi Stock Exchange, in an effort to open the real estate market to investment by a wider range of investors. The rules cover the management, operation, and ownership of the REITs. Subscription in a REIT is not only open to Saudis, but also to GCC citizens and non-Saudi residents in Saudi Arabia. Non-resident foreign investors are also allowed to trade in the units of the REITs on the Tadawul.
Additionally, the Capital Market Authority allows for the establishment of private REITs that may be subscribed through private placement. These private REITs, are regulated by the Implementing Regulations of the Capital Market Authority and must be established in the form of a close ended fund.
In recent years, Saudi Arabia has taken a number of significant steps to regulate the sale and marketing of off-the-plan lots in order to:
Protect the rights of buyers and developers, ensuring that the market is properly regulated and structured;
Raise the level of transparency and enhancing confidence in the real estate market;
Discourage property speculation (and prevent real estate bubbles);
Reduce the cost of ownership of real estate units; and
Increase the supply of developed real estate throughout Saudi Arabia.
On 6 September 2016, Resolution No 536, concerning Regulation Decree No. 983 dated 2/2/143H of the Sale or Lease of off-plan Real Estate Property Units on a Map, was implemented by the Council of Minister (“Wafi Law”) along with a number of implementing regulations (“Implementing Regulations”). The Implementing Regulations include the following:
‘Licensing Regulations’;
‘Escrow Accounts Regulations’;
‘Beneficiaries Rights and Developers Obligations Regulations’;
Engineering Consultants and Financial Consultants Work Regulations’; and
‘Project Register Regulations’.
The Regulations form the basis of what is known as the ‘Wafi Program’, or the off-plan sales and rent program. The Wafi Program is a platform that was launched by the Saudi government with the purpose of authorising and regulating off-plan property sales. The Wafi Program applies to properties, which developers are selling or leasing, both before or during their development and regardless of their type or purpose (i.e. residential, commercial, investment, office, service, industrial, tourism etc.). They also provide for the supervision of the construction progress by a consultation office (accredited by the Organisation of Saudi Engineers), which will provide quarterly technical reports on the project status until completion.
The effect of Wafi and the Implementing Regulations is to provide added consumer protection in relation to off-plan sales in KSA and the following have been created:
A Real Estate Developer Registry (also called Etnam) which records the names of all registered developers; and
A Project Registry where each project licensed by the Wafi Committee must be recorded. The requirements for registration are set out in the Project Register Regulations where the following information should be provided:
The name, location and size in area of the project;
The commencement date and time period for completion;
The names of main contractor and sub-contractor
The name of the escrow account trustee.
The purpose of registration is to show evidence of the developers financial ability to carry out the project and to open an escrow account to ensure that collections from unit purchasers are not diverted to other purposes.
Recently, the KSA government published on 23/6/1445H (corresponding on 05/01/2024G), Royal Decree M/44 dated on 10/03/1445H (corresponding on 25/09/2023G), the Law on the Off-Plan Sales and Leasing of Real Estate Projects (the “New Off-Plan Law”). This New Off-Plan Law covers many of the same topics as the Wafi Law and its Implementing Regulations and will take effect on 25/09/1445H (corresponding on 04/04/2024G).. The implementing regulations of the New Off Plan Law are awaited and shall be issued within ninety days from publication date on of the New Off-Plan Law and both shall take effect simultaneously.
The Registered Real Estate Mortgage Law was issued in 2012, to create certainty over the priority of a debt secured by a registered mortgage and to do away with the practice whereby previously a lending bank would cause the borrower to make an outright transfer of title to the real estate to a nominee named by the bank until the loan is repaid, while after 2018 the Notary Public would allow to record directly on the title any mortgage in return of any financing given by a licenses bank in KSA. However, it is important to note that, the debt being secured by the mortgage must be the subject of a Shari’ah compliant financing transaction, and must not relate to a conventional finance arrangement, whereby interest is payable.
The SREM allows for the establishment, acceptance, refusal, transfer, and amendment of mortgages directly on the platform. Additionally, the SREM allows financial institutions to subdivide a mortgaged property.
Laws have been issued to better regulate the formation of the homeowners’ associations and the management of jointly owned property. In practice, however, the level of implementation of such homeowners’ association laws is variable, and developers often retain a management role in such jointly owned properties. As the popularity of ownership of apartments is likely to grow, the Ministry of Housing has taken a greater role in supporting and regulating homeowners’ associations, and has recently published a bylaw setting out best practices in relation to the internal operations of homeowners’ associations.
A new law passed by Regulation No 440 dated 01.07.1441H (corresponding to 25/02/2020G) relates to the Ownership of Real Estate Units and its subdivision and management. This introduced a new concept to the real estate joint ownership scheme in KSA, called ‘Real Estate Community’ and accordingly the ownership of the jointly owned properties are not limited to standalone buildings anymore. It also includes a group of single-use or multi-use buildings located in one community.
The Regulation confirms that it is compulsory to establish an owners’ association (“OA”) in the case of jointly owned property comprising three or more units. The OA is granted an independent legal personality and independent financial liability, is to manage the jointly owned property, and is to be governed by its constitution.
The System of Ownership of Units Law, issued in 2002, provides for fractional or ‘strata’ ownership of buildings, such as apartments, subdivided into individual ownership units.
By Royal Order No. (A/84) of 1442H and the RETT Executive Regulations, RETT applies on or after 4 October 2020 at the rate of 5% based on the value of any real estate that is disposed of in KSA. The regulations also exempted most supplies of real estate from value added tax. Amendments to the RETT implementing regulations, through Ministerial Resolution No. 2229, were published and came into effect on 22 January 2021.
Unless an exemption applies, RETT is payable in relation to sales, transfers, leases, assignments, gift, financial leasing and similar transactions. The sale of shares in property owning companies may also attract a charge to RETT. Generally, RETT is due on the date of disposal of real estate. The party disposing of property is responsible for paying RETT to the General Authority of Zakat and Tax but both parties involved in the transaction are jointly responsible if the RETT is not paid. A 5% fine for each month or part-month is payable whilst the RETT is outstanding is payable.
Certain transactions are exempt from RETT, which include disposals of real estate to third degree family or a charity, for inheritance purposes or as a contribution for shares provided the shares are not disposed of within five years. Third degree family members include the spouse, parents, grandparents and siblings.
A number of Government initiatives have been introduced in KSA with a view to promoting real estate development and to provide greater confidence in the real estate market. Among the Government initiatives are Etmam, Ejar, the Real Estate Regulatory Authority (REGA) and the Idle Land Tax Law, the Off-Plan Sales and Leasing Committee (WAFI).
Etmam as referred above is a government initiative aimed at assisting real estate developers through various stages of their development projects. Etmam acts as liaison centre by coordinating with the relevant authorities to avoid inordinate delays in the licensing and approval process for real estate developments, including approvals for subdivision of lands, and issuance of building permits, off-plan sales licences and building completion certificates.
Ejar is a rental service e-network that can be used by both landlords and tenants (including expatriates). It is of particular benefit to the tenant who can check if the landlord owns the property, if the landlord’s representative is duly authorised and if the real estate agent is duly licensed for renting property. The service also allows tenants to report violations to the supervisory team at Ejar, such as brokers charging excessive commissions, brokers charging commissions on renewal of tenancy agreements, brokers colluding with the aim of manipulating the rent, and landlords failing to register the tenancy agreements on the Ejar network.
REGA is a regulatory authority set up to enhance transparency, stimulate investment and provide consumer protection in the real estate industry. REGA is developing a number of measures, including price indicators (selling and rental) to avoid abuse by developers and landlords.
Idle Land Tax Law (or the “White Lands Tax Law”) is aimed at taxing undeveloped urban land (so-called ‘white lands’), in order to encourage landowners to address the issue of land shortage by developing land in urban areas. The annual tax rate is 2.5% of the value of the land. This new tax is consistent with the government’s policies for stimulating development and increasing affordable housing across the Kingdom.
SREM (Saudi Real Estate Market): As part of the Ministry of Justice’s national transformation program for Saudi Vision 2030, SREM as stated above is a multifaceted platform that contributes to the Ministry of Justice’s efforts to digitize real estate wealth. Comprising of various services, its mission is to expedite real estate operations, while ensuring quality, efficiency, accuracy and transparency in the data provided. The SREM offers services such as listing, transferring, gifting, mortgaging, and updating title deeds to all current beneficiaries of real estate services provided by the Ministry of Justice, whether they are individuals or legal entities.
