Real Estate, Construction and Hotels & Leisure Focus
Angela Bhaseen Senior Associate, Real Estate
Charbel Sabeh Associate, Corporate Commercial
Saudi Arabia’s Vision 2030, unveiled in 2016, creates a strategic plan to encourage foreign investment and prioritize sectors including technology, education, healthcare and tourism. The Vision is being implemented across the Kingdom with legislation being introduced in many areas, including real estate.
Ownership of real estate in Saudi Arabia has previously been restricted to Saudi citizens but with the onset of Saudi Vision 2030, legislation has now been introduced allowing ownership to GCC nationals and GCC companies and non-GCC nationals and companies, foreigners and international investors subject to restrictions and qualifications.
The Foreign Property Ownership Regulations dated 17/04/1421 (“FPOR”)(corresponding to 19/07/2000) states that, with the exception of properties within the vicinity of Mecca and Medina, a GCC company (with shareholders who are all GCC nationals), or a GCC national individual, may:
Lease or purchase land in Saudi Arabia 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 prevented ownership by foreigners of real estate inside the vicinity of Mecca and Medina but Cabinet decision No: 83 dated 17/09/1442H (corresponding to 29/04/2021G) amended this and now allows ownership of properties within these areas by companies listed in the Saudi Capital Market which have obtained all necessary approvals from the Saudi Capital Market Authority.
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”).
Non-GCC nationals may own property in Saudi Arabia, if they have normal legal residency status and the required permits from the Ministry of the Interior. These permits can be applied for using 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 applications.
Generally speaking, and subject to addressing MISA foreign investment licence 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.
Foreign real estate developers are capable of owning and developing properties in KSA, outside Mecca and Medina, by obtaining a foreign investment licence issued by MISA. The foreign investor wishing to engage in real estate development activities must submit a full study of the project, the value of which should not be less than SAR 30,000,000 (development cost and land).
Saudi Arabia now has laws in place for land identification, ownership, survey and registration. The real estate registration regulation that was approved by the Board of Ministers on the 19th of April 2022, mentions a new process that will archive all changes and actions on the property, and gives each property a special title deed number. This new regulation will link the location of the property with accurate spatial coordinates, and give absolute and undisputable authority of the property’s ownership and its rights. The new regulation is considered as an important milestone for the real estate sector in KSA and increases the reliability of real estate titles, and raises transparency with the accuracy of its data. It will also solve one of the most important real estate ownership challenges of duplication of ownership and overlap between real estate interests.
The KSA government has also created the Real Estate General Authority (“REGA”). REGA will be the only authority in KSA that will have the right to hold and issue title deeds for real estate properties in KSA.
There are a number of ‘Economic Cities’ under development in Saudi Arabia. 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 licences and other approvals to service providers, including district cooling, warehousing and logistics in the Economic Cities. This has encouraged foreign (and local) investors to invest and facilitated the issuance of 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.
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.
A 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.
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.
Wafi Law along with a number of implementing 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 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.). The effect is to provide added consumer protection in relation to off-plan sales in KSA.
Etmam 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 excessive 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 rightfully 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, for example if a landlord fails to register the tenancy agreement 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.
Real Estate Transactional Tax (“RETT”) is payable at the rate of 5% based on the value of any real estate that is disposed of in KSA. Unless an exemption applies, RETT is payable in relation to sales, transfers, leases, assignments, gifts, financial leasing and similar transactions.
Idle Land Tax Law (or “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 tax is consistent with the government’s policies for stimulating development and increasing affordable housing across the Kingdom.
For further information, please contact Angela Bhaseen or Charbel Sabeh.
Published in July 2022