Regulations governing corporate ownership of real estate in Mecca and Medina – Capital Market Authority
In a significant regulatory step aimed at enhancing the investment environment in Saudi Arabia, the Capital Market Authority (CMA) draft regulations governing the ownership of real estate in the Kingdom by listed companies, investment funds, and special purpose vehicles. This move is part of the CMA's efforts to develop and improve the efficiency of the capital market, in line with the goals of Vision 2030 to diversify the economy and attract investment.
Details of the draft property ownership law in Saudi Arabia
The draft clarified that companies listed on the stock exchange, as well as investment funds and special purpose entities, may own real estate or acquire other real rights to it in various regions of the Kingdom. This includes the cities of Mecca and Medina , but subject to specific regulations that ensure a balance between economic openness and the sanctity of the Two Holy Mosques.
Investment regulations in Mecca and Medina
The authority set precise conditions for property ownership within the boundaries of the Two Holy Mosques, as stipulated in the draft:
- Headquarters and branches: Listed companies are allowed to own real estate in Mecca and Medina if it is designated for their headquarters or administrative branches, provided that the property is fully utilized for this purpose.
- Real estate investment: Ownership for other purposes (such as investment) is permitted, provided that certain conditions related to foreign ownership are met, namely:
- The foreign strategic investor must not own any shares or convertible debt instruments in the company.
- The combined ownership of non-Saudis (individuals or institutions) shall not exceed 49% of the company’s shares or convertible debt instruments at any time.
Economic context and Vision 2030
These proposed amendments are part of the massive economic transformation underway in the Kingdom under Vision 2030. Allowing companies and funds to own real estate, particularly in high-yield areas with religious and tourist appeal such as Mecca and Medina, will contribute to deepening the financial market and increasing liquidity. This approach also reflects the Kingdom's desire to empower the private sector and broaden the asset base that listed companies can leverage to strengthen their financial positions.
Expected impact on the real estate and financial markets
These controls are expected to have a tangible positive impact on several levels:
- Attracting capital: Allowing financial market institutions to accept subscriptions from non-Saudis in funds that invest in real estate in the Kingdom (including Mecca and Medina) will open the door to new foreign cash flows through regulated investment channels.
- Growth of REITs: Real estate investment trusts will greatly benefit from the clarity of these controls, enabling them to diversify their real estate portfolios in the two holiest sites in the Islamic world.
- Transparency and Governance: Regulating the acquisition process through listed companies and licensed funds ensures high levels of transparency and compliance with regulations, compared to unregulated individual investments.
Compliance with existing regulations and rights
The Authority's draft regulations affirmed that these controls do not infringe upon the commitment of all parties (foreign investors, companies, and funds) to the Non-Saudi Ownership of Real Estate Law and its implementing regulations, particularly when dealing with requests for in-kind redemption or fund liquidation. The Authority also emphasized the preservation of legal rights, as these new controls do not retroactively affect ownership rights and in-kind rights acquired by companies and funds before these instructions came into effect, thus reinforcing confidence in the stability of the Kingdom's legislative environment.
