New Saudi Arabia Real Estate law – foreign investment in Saudi Real Estate

1. Scope of the law

The Law governs the ownership, use, and investment in real estate by non-Saudis, including both individuals and legal entities, within the Kingdom of Saudi Arabia. It seeks to facilitate access to real estate by non-Saudis under regulated conditions that promote national development while safeguarding strategic interests and maintaining regulatory oversight.

The Law is expected to apply to non-Saudis, including residents, investors, diplomatic missions, and international organizations. It outlines the framework for acquiring, using, and investing in real estate for residential, commercial, or development purposes.

The Real Estate General Authority (“REGA”) is the competent authority responsible for overseeing the implementation of this law and issuing any related regulations or guidance.

This Law repeals and replaces the Law on Ownership and Investment of Real Estate by Non-Saudis issued under Royal Decree No. M/15 dated 2000G.

2. Key provisions

1. Residential ownership for Non-Saudi individuals

Non-Saudi individuals who are legally residing in the Kingdom may own one residential property for personal use, including property located outside the geographic areas to be designated by the Council of Ministers, subject to prior approval and compliance with applicable residency and regulatory conditions.

The Council of Ministers is expected will determine:

1. The geographic areas where non-Saudi ownership is permitted or restricted;
2. The types of real rights that non-Saudis may acquire;
3. The maximum ownership share permitted for non-Saudis within designated areas;
4. The maximum duration for usufruct (right of use) granted to non-Saudis.

2. Property ownership by Non-Saudi legal entities

Non-Saudi companies licensed to operate in Saudi Arabia, including non-listed entities with non-Saudi ownership, may be allowed to acquire real estate necessary for their business operations and employee housing. This may include properties located both within and outside the designated geographic areas, and potentially in Makkah and Madinah, subject to applicable legal limits and regulatory approval.

Publicly listed companies, investment funds, and licensed special purpose entities may also be permitted to acquire property and related real rights throughout the Kingdom in accordance with the Capital Market Law and applicable regulatory frameworks set by the Capital Market Authority (“CMA”), in coordination with REGA and other relevant entities.

3. Restrictions in Makkah and Madinah

Non-Saudi ownership of real estate is generally not permitted in Makkah and Madinah. However, non-Saudis may be allowed to obtain rights of use in these cities through long-term leases or usufruct agreements, subject to applicable regulations.

4. Real Estate investment for development projects

Non-Saudis may be authorized to invest in or own real estate as part of government-approved development projects particularly those that align with national urban, tourism, or economic diversification goals under the supervision of REGA.

5. Diplomatic missions and international organizations

Accredited diplomatic missions may be permitted to own property for their official premises and for the residence of their senior representatives, based on the principle of reciprocity. Regional international organizations may also be allowed to acquire real estate for their headquarters, in accordance with their governing agreements and subject to approval by the Ministry of Foreign Affairs.

6. Inheritance of property

Where a non-Saudi inherits real estate from a Saudi owner, the continued ownership or use of such property may be subject to conditions and procedures to be detailed in the implementing regulations. REGA may be empowered to assess each case based on public interest and approve, restrict, or impose conditions accordingly.

7. Registration requirements

Real estate transactions involving non-Saudis must be registered in the official property registry pursuant to the Real Estate Registration Law. Unregistered transactions may not be legally recognized and could be subject to enforcement measures

8. Legal coordination and prevailing laws

The Law is not expected to override existing legal provisions that grant non-Saudis more favourable rights, including the Privileged Residency Law, regulations governing GCC nationals’ real estate ownership, and other special regimes. Such provisions will continue to apply alongside this Law.

9. Violations and penalties

Violations of the Law - such as unauthorized acquisitions or misuse of real estate may lead to penalties including fines, forced divestment, or revocation of ownership rights, depending on the nature of the violation and related regulations.

10. Fees on disposal of real estate rights by Non-Saudis

A fee may be imposed by REGA on the value of a non-Saudi's disposal of real estate or real rights, which is expected to be capped at 5% of the transaction value. This mirrors the existing real estate transaction tax applicable to Saudi nationals and is subject to further clarification in the regulations.

11. Authority and implementation

REGA is expected to be the authority responsible for administering the Law. Its mandate may include drafting and issuing implementing regulations, overseeing compliance, granting exemptions where appropriate, and coordinating with other relevant government bodies.

While the Law introduces a more structured and potentially expansive framework for non-Saudi ownership and investment in real estate, its full impact will become clearer upon the issuance of the implementing regulations and related guidance by the relevant authorities.

Authored by Turki Alsheikh.