Navigating CMA's New Regulations on Foreign Investment in Real Estate in the Two Holy Cities
Real Estate & Construction and Hotels & Leisure Focus
Historically, foreign ownership of real estate in Mecca and Madinah has been restricted under the Law of Real Estate Ownership and Investment by Non-Saudis, particularly Article 5.
Law Update: Issue 378 - Real Estate & Construction and Hotels & Leisure
Muhammad Abdul HamidSenior Associate,Real Estate
Leenh Alshehri Trainee Lawyer,Real Estate
In January 2025, the Capital Market Authority ("CMA") introduced a major regulatory development by allowing foreign investors to participate indirectly in the real estate market of Mecca and Madinah. For the first time, non-Saudis are permitted to own shares in listed companies that hold real estate assets within the boundaries of the two holy cities. This decision reflects Saudi Arabia's ongoing efforts to strengthen its capital markets, enhance economic diversification, and support the ambitious goals of Vision 2030 while maintaining the sanctity and special status of Mecca and Madinah.
Historically, foreign ownership of real estate in Mecca and Madinah has been restricted under the Law of Real Estate Ownership and Investment by Non-Saudis, particularly Article 5. Ownership in these two cities was limited to Saudis and fully Saudi-owned companies, with very limited exceptions. In 2021, amendments to the law opened the door for regulators such as the CMA to create specific frameworks enabling foreign investment without granting direct ownership of land in the holy cities. The CMA's 2025 regulations were issued pursuant to the Law of Real Estate Ownership and Investment by Non-Saudis, which provides the legal basis for these controls.
Indirect Ownership Through Listed Companies:Foreign investors may now acquire shares or convertible debt instruments issued by Saudi-listed companies that own real estate assets in Mecca or Madinah.
Ownership Cap and Continuous Compliance: Aggregate foreign ownership in such companies is capped at 49% of the share capital or convertible debt instruments. This cap must be maintained at all times, requiring listed companies to actively monitor and ensure ongoing compliance, including after share transfers or changes in ownership structure.
Historically, foreign ownership of real estate in Mecca and Madinah has been restricted under the Law of Real Estate Ownership and Investment by Non-Saudis, particularly Article 5. Ownership in these two cities was limited to Saudis and fully Saudi-owned companies, with very limited exceptions.
Foreign investors who are eligible to invest are limited to the following:
Residents: Non-Saudi individuals residing in Saudi Arabia.
GCC Nationals: Citizens or entities from Bahrain, Kuwait, Oman, Qatar, and the United Arab
Emirates.
QFIs (Qualified Foreign Investors): Foreign institutional investors who meet the criteria set by the CMA’s Rules for Foreign Investment in Securities, permitting them to invest in shares listed on the Main Market of the Saudi Exchange. To qualify, investors must have assets under group ownership, management, or custody of at least SAR 1.875 billion (approximately US$500 million), with exceptions for certain pension funds, endowment funds, sovereign wealth funds, and government entities.
Swap Beneficiaries: Foreign investors accessing shares via swap agreements with CMA licensed institutions.
Discretionary Portfolio Management Clients: Foreign clients of Saudi-licensed asset managers who delegate full investment discretion to such managers.
The regulations specifically exclude Foreign Strategic Investors from participating. CMA laws define a Foreign Strategic Investor as: "A foreign legal entity that aims to own a strategic shareholding in listed companies, in accordance with a strategic plan." This means that foreign investors seeking management control or significant influence are not permitted; the investment must remain purely financial in nature.
The law distinguishes between properties used for company headquarters/branches and other purposes:
A Saudi company listed in the Saudi Stock Exchange (Tadawul) may acquire the right of ownership, easement, or usufruct over a property located within the borders of the cities of Makkah and Madinah on the properties allocated to its headquarters or branches, provided that the property is fully used for such purpose.
For other purposes, the company must meet the foreign ownership and strategic investor restrictions described above.
Listed companies must comply with all applicable regulations and restrictions related to property usage in the two cities, not only during their operations but also upon liquidation.
Real Estate Developers: The new regulations are expected to boost liquidity for Saudi-listed real estate companies, particularly those with projects in Mecca and Madinah. Developers may now access a wider pool of investors, potentially lowering their cost of capital and accelerating the delivery of real estate projects that serve visitors and residents in the two holy cities.
Public Real Estate Funds ("REITs") and Investment Vehicles: The decision complements earlier initiatives to open Saudi REITs to foreign investors. Investment opportunities in Mecca and Madinah are now broader, covering both real estate funds and listed development companies, giving investors more flexibility and encouraging greater institutional participation.
Foreign Institutional Investors: For Qualified Foreign Investors (QFIs) and other eligible institutions, the CMA's decision presents a unique opportunity to participate in the development of some of the most significant real estate markets in the Kingdom, contributing to broader economic initiatives and infrastructure growth.
This regulatory development supports broader national efforts to strengthen Saudi Arabia's investment environment, grow its capital markets, and promote sustainable economic growth. It also contributes to the Kingdom's initiatives to enhance the infrastructure and services in Mecca and Madinah, in line with Vision 2030's objectives for improving the quality of life and developing key sectors of the economy.
The CMA's 2025 decision represents a major milestone for Saudi Arabia's real estate sector. By expanding access to investment opportunities while preserving core principles of ownership and respect for Mecca and Madinah, the Kingdom continues to demonstrate its commitment to a sustainable, dynamic, and forward-looking economy under Vision 2030. With the inclusion of the precise definition of "Foreign Strategic Investor," the requirement for continuous compliance with ownership caps, clarification of property usage restrictions, and the obligation for compliance upon liquidation, the regulatory framework is now fully aligned with the law and provides comprehensive guidance for all market participants.
For further information,please contact Muhammad Abdul Hamid and Leenh Alshehri.
Published in June 2025
