Foreign Ownership Regulations: Non-GCC nationals and companies not entirely owned by GCC nationals are granted specific rights to own property in Saudi Arabia. The acquisition of real estate by foreigners is governed by the Foreign Ownership of Real Estate Regulation, established by Royal Decree No. M/15 on 17/04/1421H (19 July 2000). Foreign investors are allowed to own and invest in property, contingent upon securing an investment license from the Saudi Arabian General Investment Authority (SAGIA).
Development and Investment by Non-GCC
Entities: Non-GCC
development firms may own property linked to specific development projects,
provided they meet SAGIA’s licensing requirements. The construction must
be investment-driven, aiming for sale or lease, and executed by a contractor
licensed in Saudi Arabia.
Real Estate for Business and Residential
Use: Non-GCC
entities can own property necessary for their business operations, including
headquarters and storage facilities. They may also own residential units for
their employees or for personal use by individuals with legal residency.
Restrictions in Holy Cities and Specific
Locations: Foreign-owned
entities cannot acquire property rights within Mecca and Medina’s city limits.
Additional restrictions apply as per the Saudi Council of Ministers’
resolutions and royal decrees, which prohibit real estate acquisition in
certain designated areas.
Legal Residency and Ownership: Foreign
individuals with legal residency status in Saudi Arabia may own property if
they obtain a permit from the Ministry of the Interior. It’s important to note
the stringent anti-fronting law in Saudi Arabia, which should be considered
when structuring investments through an entity.
Land Registration and Titling System: The Realty in
Kind Registration Law, decreed by Royal Decree No. 6 on 9/21423H, aims to
establish a clear and transparent system for land identification and
registration, which will eventually encompass all the Kingdom’s real estate.
This initiative is supported by:
The Law of General Survey Authority
The System of Ownership of Units and Estates,
issued by Royal Decree No. 5 on 11/2/1423H (24 April 2002)
Despite these laws, the current system is
somewhat unstructured and resembles a deeds system, where ownership is
traced through contractual agreements, and changes in ownership are recorded by
the First Notary Public in a register maintained by the Ministry of Justice.
Practices may differ across regions, and unique regulations may be in place for
Economic Cities.
Economic Cities and Foreign Registration: Saudi Arabia is developing several economic cities, including King Abdullah Economic City, Knowledge Economic City, Prince Abdulaziz bin Mousaed Economic City, and Jazan Economic City. The Economic Cities Authority has set forth regulations for registering foreign companies and land titles for foreign entities within these cities.
REITs and related real estate
regulations in Saudi Arabia:
Introduction to REITs in Saudi Arabia: In 2016, the Capital Market Authority of Saudi Arabia established regulations to facilitate the creation of Real Estate Investment Traded Funds (REITs) on the Saudi Stock Exchange (Tadawul). This move aimed to diversify the real estate investment landscape, inviting a broader spectrum of investors. The regulations encompass the governance, functioning, and proprietorship of REITs.
Investor Participation in REITs: REITs are accessible for investment to Saudi nationals, GCC citizens, and expatriates residing in Saudi Arabia. Additionally, non-resident international investors have the opportunity to trade REIT units on the Tadawul.
Regulations
on Off-Plan Property Sales: The 6th of September 2016 marked the
enactment of Resolution No. 56, which introduced the Regulations on the Sale of
Off-Plan Real Property. This legislation enhances consumer safeguards
concerning off-plan property transactions.
Developers are mandated to register their
projects with the Off-plan Sale Committee at the Ministry of Housing,
demonstrating financial competence and securing adequate protections, notably
through escrow accounts, to ensure funds from buyers are allocated correctly to
the respective projects.
A consulting office, certified by the Saudi
Council of Engineers, oversees construction progress, delivering quarterly
technical updates until the project’s completion.
Real Estate Mortgage Legislation: The Registered Real Estate Mortgage Law, promulgated in 2012, was designed to establish clarity regarding the precedence of debts secured by registered mortgages, eliminating the previous practice of banks taking temporary title transfers from borrowers.
A pivotal element of this law is its adherence
to Sharia-compliant financing, as the secured debt must not be associated with
conventional interest-bearing finance under the laws of Saudi Arabia.
Management
of Jointly Owned Property: The governance of jointly owned
properties is outlined in the Law of Proprietorship and Sorting of Real Estate
Units, enacted by the Council of Ministers Resolution No. 40 and further
supported by Royal Decree No. M/5, both dated 09/02/1423 AH, along with
subsequent amendments and Executive Regulations.
These laws establish a framework for the
formation and administration of homeowners’ associations, ensuring
industry-standard management of common areas, association funds, and collective
assets. While the application of these laws varies, developers often maintain a
managerial role in such properties.
With the anticipated rise in apartment ownership, the Ministry of Housing is increasingly involved in endorsing and overseeing homeowners’ associations, having recently issued a Bylaw delineating optimal practices for the associations’ internal management.
Understanding VAT and Real Estate
Services in Saudi Arabia
Value Added Tax (VAT)
Implementation: Saudi Arabia, in unison with the United Arab Emirates
(UAE), pioneered the introduction of Value Added Tax (VAT) within the Gulf
Cooperation Council (GCC). Effective from 1 January 2018, VAT applies to
various transactions.
VAT Rates on Real Estate: Commercial real
estate transactions are subject to a standard VAT rate of 5% annually,
similar to the UAE. However, unlike the UAE’s initial zero-rated supply,
residential real estate in Saudi Arabia is also standard-rated. The exception
lies in residential leases, which are exempt from VAT.
VAT Exemptions: The sale of
occupied commercial buildings might be considered a business transfer, thus
potentially exempting it from VAT obligations.
Etmam – Developers Services Centre: Etmam
is a governmental initiative designed to streamline the process for real estate
developers at different project stages. It includes key ministries as permanent
members and acts as a facilitator to prevent delays in licensing and approvals
for large-scale residential and commercial developments exceeding 50,000 square
meters.
Etmam’s Support Services Include:
- Land subdivision approvals
- Comprehensive development plan approvals
- Building permit issuances
- Building completion certificate issuances
- Off-plan sales license issuances
- Off-plan marketing license issuances within Saudi Arabia for projects abroad
Etmam encourages developer interaction and regularly convenes meetings to address project challenges and enhance service quality.
Ejar – Rental Service Network: The
Ministry of Housing’s Ejar platform is a digital rental service network that
simplifies property renting processes. Through its app, users can:
- Locate licensed real estate agents
- Verify identities of landlords and tenants before finalizing tenancy agreements
- Confirm property ownership and the authority of landlord representatives
- Report any infractions to Ejar’s supervisory team, such as overcharging by brokers, commission on tenancy renewals, rent manipulation, or failure to register tenancy agreements on the Ejar network.
Real Estate General Authority
The Real Estate General Authority was
established by the Council of Ministers Decision No. 239 of 25/4/1438. Its
primary objectives include enhancing transparency, promoting investment, and
safeguarding consumer interests within the real estate industry.
Key initiatives undertaken by the
Authority include:
Transparency Enhancement:
Developing price indicators (for both sales and
rentals).
Monitoring construction progress through
relevant indicators.
Benchmarking and Best Practices:
Conducting local and international comparisons.
Learning from reputable real estate regulators
worldwide (including Australia, the United States, Hong Kong, Singapore, and
the United Arab Emirates).
Proposing regulatory changes to streamline
property dispute resolution.
Capacity Building:
Organizing training programs and accredited
courses.
Elevating skills and quality among stakeholders
in the real estate market.
Idle/White Land Tax Law
The Saudi Arabian government has introduced a
tax on undeveloped urban land, commonly referred to as “white lands.” The
objectives of this tax are as follows:
Land Availability and Balance:
- Encourage land development to strike a balance between supply and demand.
- Facilitate the availability of residential land at reasonable costs.
- Fair Competition and Monopoly Prevention:
- Promote fair competition by discouraging land hoarding.
- Combat monopolistic practices related to vacant land.
Tax Rate and Impact:
Non-government-owned vacant lands are subject
to an annual tax rate of 2.5% based on the land’s value.
While not excessively high compared to similar
land taxes elsewhere, it encourages landowners to utilize their properties for
income-generating purposes.
Exciting Developments for Foreign Investors in Saudi Real Estate
A Welcoming Change: If you’re a foreign investor eyeing the Saudi real estate market, there’s promising news on the horizon. Saudi Arabia is crafting new property ownership regulations that will expand the rights of non-Saudi nationals to own a wider array of real estate assets.
Announcement
from the Top: Abdullah
Ahmed, the leader of the Real Estate General Authority (REGA), unveiled these
plans in March 2023, signaling a significant shift in the Kingdom’s economic
diversification efforts.
Awaiting
Details: While
the finer points of these regulations are still under wraps, the final touches
are being applied, and a public announcement is imminent. Rest assured, we’ll
bring you the latest updates and insights into the new law as soon as it’s
enacted. Customers who have invested in the Saudi Arabia Property Pack will
receive a detailed breakdown to navigate the changes with ease.
A More
Inclusive Framework: This legislative move is set to create a more
expansive and welcoming property ownership environment for international
investors, surpassing the limitations of the existing system.
Current
Restrictions: Presently,
Saudi legislation restricts foreign ownership in the sacred cities of Makkah
and Madinah.
Anticipated
Reforms: The
anticipated reforms, however, are poised to open up ownership rights to
foreigners across the Kingdom, including the revered cities of Makkah and
Madinah.
Diverse
Property Types: The
scope of these new rights is expected to cover an array of property categories,
including commercial, residential, and agricultural real estate, offering a
wealth of opportunities for foreign investment.
Conclusion
Saudi Arabia’s Vision 2030 is poised to create significant opportunities in the real estate sector. As the country aims to become a leading global real estate jurisdiction, additional regulations and guidelines will be issued to align with international best practices. These developments will contribute to stimulating development, increasing affordable housing, and fostering a dynamic real estate market in the Kingdom.
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