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Real Estate Funding in Saudi Arabia

Guiding Principle

Consistent with the expected enforcement of the new real estate funding regulations on 2014, many establishments rushed to get the required funding licenses from the Saudi Arabian Monetary Agency. By January 1st, 2014,  five establishments were licensed following the first license granted to Riyad Bank few days before the end of 2013. More licenses are expected shortly as well. This comes with the expectations that the new funding regulations (Funding Lease, Registered Real Estate Mortgage, Real Estate Funding, and Monitoring the Funding Companies Laws and their Implementing Regulations) will raise the growth of the Saudi real estate market, which has been slowly growing during the last three years.

1. The Saudi Housing Market

The growth of monopoly practices and the continuous rise at the prices of the residential land plots are one of the prominent features of real estate market in Saudi Arabia. As a result for these features, the options available for the Saudi households to own a private residence is shrinking to the limit that the middle class is not able anymore to own one. The current gap between the savings of the middle class and the prices is not possible to be recovered within a life time.

In this regard, King Abdullah Bin Abdul-Aziz Foundation for Development Housing Dedicated to his Parents (KAF)[1] has conducted a survey to find out the housing needs of the Kingdom’s regions. The survey has focused on two categories of the Saudi households (The needy category for housing and the neediest category). The results have shown that the 1st category reaches to 800,000 Saudi households, while the 2nd category does not exceed 100,000 households from those in need. This represents 27% of the total Saudi households, which amounts to 3 million.

The need of the 1st category for housing is essential as they have to spend more than 30% of their income in renting their residence. The 2nd category shares the 1st one in the fact that they spend more than 30% of their income for the rent. However, their need is a more essential as their residence are most probably modest, inappropriate healthy and functionally to live by.

The lack of funding is the cornerstone of housing dilemma in Saudi Arabia, which is the most important challenges facing the real estate sector and investors in the Kingdom. Moreover, the great demand leads to further increase at the prices of residences far beyond the financial capabilities for the abovementioned society categories, which can not afford to secure a private residence for themselves. This dilemma shows up clearly at the major cities characterized by high population density as the capital Riyadh, Jeddah and Dammam.

2. The Efforts of the Saudi Government to Solve the Housing Dilemma

Realizing the current status, the Saudi government has introduced several measures for solving the housing dilemma. The new measures included raising the loans of the Saudi Real Estate Development Fund (REDF)[2] from 300,000 Saudi Riyals[3] to 500,000 Saudi Riyals, establishing a new ministry for housing on March 2011 and allocating 250 billion Saudi Riyals (= US$ 66 billion) to the new Ministry for building 500,000 residential units on 32 million m2 all over the Kingdom. The units will be constructed at 11 sites owned by the government.

However, the introduced measures formed long-term solutions that do not deal with the current status of the market and did not reach to the level of the recent rises at the prices of residences[4].

The Index of Real Estate at the Saudi Ministry of Justice showed that the real estate bubble has continued to expand in all the Saudi cities. The average price per square meter, in the index for the residential real estate, increased by the rate of 43.8% during the period from 2009 to the first three-quarters of 2012. While the index for the commercial real estate increased by 152.4% during the same period.

3. The Real Estate Funding Regulations

In its quest toward solving the abovementioned dilemma, maximizing the developments rates of its, slowly growing albeit massive, real estate sector, and the Saudi government has been studying introducing a comprehensive effective real estate system. The new system shall provide the contributors, particularly the banks and the households, with high degree of satisfaction and confidence.

The studies conducted by the relevant bodies have shown that there is a need to build confidence in the real estate system between contributors. Such trust can be built when the contributors realize that the system is applied in a transparent way, and the rights of both lenders and creditors are protected.

Consequently the Saudi government has worked on introducing new regulations that clearly organizes all of the above in a manner fair to all contributors for creating a healthy real estate environment in the Kingdom.

The efforts of the Saudi government have resulted in introducing five laws termed as the Real Estate Funding Regulations on 2012, where in line with the preparation for issuing the implementing regulations and obtaining the required licenses for the funding entities, it was estimated that the full real estate funding shall be applied by November 2014.

The promulgations of these regulations were postponed for several times based on the reservations expressed by some of the Saudi official bodies involved in the preparation of these regulations. The relevant official bodies estimated on 2011 that the real estate’s prices are too high due to the transactions carried out by the speculators in the market.

These bodies expected that the enforcement of the funding regulations directly after their promulgation will lead to more unjustified increases at the prices of lands in the Kingdom. The speculators and traders working at the real estate market will exploit the promulgations to raise the prices claiming that these regulations will increase the demand over the lands. Therefore, the promulgation of the funding regulations was linked to the preparation for building the above-mentioned 500,000 housing units.

Later, the Saudi Arabian Monetary Agency (SAMA)[5], which is the authority concerned with organizing the sector in line with the provisions of the funding regulations, has issued the implementing regulations on 2013[6].

It is expected that the enforcement of the new regulations will led to an increase at the growth rates of the housing market in Saudi Arabia by providing more effective tools for the household to fund buying their residences.

The five laws forming the new Saudi Funding Regulations can be summarized as follows:

I. The Funding Lease Law (“SA-FLL”)[7]

The lessor under the SA-FLL may rents assets or benefits under a contract concluded with the lessee. Where the lessee will undertake to use the rented unit in its agreed purposes and shall be responsible for the operational maintenance. The basic maintenance will be amongst the responsibilities of the lessor unless agreed otherwise. The ownership of the unit may be transferred to the lessee without prejudice to the provisions of the Real Estate’s Owning and Investment for Non-Saudis Law (“SA-RSOINSL”)[8]. It is permitted to issue Negotiable Instruments versus leased assets, in accordance with the regulations issued by the Saudi Capital Market Authority (CMA)[9].

SAMA shall be the authority competent with issuing the required licenses for a Joint-Stock Company or more established for the purpose of registering and preparing the registers for the contracts, and informing the licensed funding bodies about the contracts registers under a written approval from the lessor. The ownership of these companies will be limited to those licensed for practicing the funding activities. SAMA shall organize the process of increasing the capital of the registering companies through including the new licensed entities into this company.

II. The Registered Real Estate Mortgage Law (“SA-REML”)[10]

The Registered Real Estate Mortgage Contract is a contract, which earns the mortgagee an in-kind right over a particular real estate property; hence the mortgagee is ahead of all creditors in the fulfilment of his debt from the price of this property. The registration will be according to the provisions of the real estate in-kind registration if that property is registered at the in-kind registry. If it is not, the right is to be registered at the court or notary public.

The mortgagor shall have the right to dispose of the mortgaged property if it was registered at the in-kind registry. Mortgagors of un-registered properties are not entitled to do so unless agreed otherwise. The mortgagee may transfer his right in fulfilment of the debt with the Mortgage Guarantor to third parties.

It is not permitted to require at the mortgage contract that the benefits of the mortgaged for the mortgagee, or that the mortgagee shall own the mortgaged in exchange for his debt if the mortgagor did not fulfilled it at its due time.

The impact of the mortgage on the current debt is limited to the mortgage document. With the exception of the securities, the provision of the SA-REML applies on the movables with formal register such as ships, planes, vehicles, etc.

III. The Real Estate Funding Law (“SA-REFL”)[11]

The SA-REFL has assigned the Saudi Ministry of Finance in cooperation with the Saudi Ministry of Housing to prepare the public policies for funding after getting the approval of the Saudi Cabinet. Thereafter, the two Ministries shall cooperate to set the necessary executive plans.

SAMA shall organize the funding sector by entitling banks and other entities including licensing new Joint-Stock Companies to practice the funding activities. All the required licenses for insurance companies to cover the risks related to real estate funding according to Monitoring of Cooperative Insurance Companies Law (“SA-MCICL”)[12] are to be issued by SAMA as well.

SAMA shall issue the standards and procedures related to the real estate funding including the required templates. The Agency shall publish all the relevant data and sponsor the development of funding techniques.

While, the REDF shall dedicate part of its budget as guarantees and aids for supporting the real estate funding for those who are in need for support. The government shall guarantee the fulfilment of the financial obligations resulting from the guarantees of the fund.

IV. Monitoring the Funding Companies Law (“SA-MFCL”)[13]

SAMA shall prepare the required comprehensive system for issuing the required licenses. This includes the administrative structure, the investment plans, the capital including the non-Saudi shares (if any) and the regulatory and professional requirements, etc. The Agency shall license the funding companies in exchange for guarantee and supervise the work of the funding companies and make sure its instruments are in line with the rules of the Islamic Shari’ah[14].

V. The Implementation Law (“SA-IL”)[15]

The SA-IL came to provide speed in the application of sanctions against the violators of the previous laws. The implementation and its procedures will be done by implementation circuit at the general courts in the cities and the main governorates.

These circuits shall implement all the resolutions or orders from the semi-judicial committees. The implementation judge shall have the right to settle the implementation disputes regardless of its amount.

Implementation Judges are authorized to use and supervise the compulsory execution, assisted by a sufficient number of the implementation officers. Further, these judges are authorized to issue the implementation resolutions and orders including the implementation detention over the mortgage.

The process of selling the mortgage under detention is done through an auction, where only qualified participants shall join by coordination from the Saudi Ministry of Justice and SAMA to ensure their solvency.


[1] King Abdullah bin Abdul-Aziz Foundation for Development Housing Dedicated to his Parents (KAF) was established according to the Supreme Approval No. (A/159) dated on 20/08/1423 A.H. corresponding to 26.10.2002 G as a charitable foundation aiming at providing appropriate housing for the neediest groups in the Saudi society and making charitable projects related to housing to be beneficial to the citizens of the country. For more information, kindly revert to the foundation’s website:

[2] The Saudi Real Estate Development Fund (REDF), was established by the Royal Decree No. M/23 dated 06.11.1394 A.H. corresponding to 01.07.1974 G in Riyadh with offices all over Saudi Arabia. The current capital of the Fund is S.R. 183 billion (= US$ 48 billion) The purpose of the Fund is to provide loans for building private residences, the Fund grants special long-term loans with no interest for the Saudi citizens to be repaid over 25 years

[3] US$ 1 = S.R. 3.75 S.R., € 1 = S.R. 5.10

[4] The REDF have a long list of loan seekers, where it is not expected that they get their loans before months. While, some of those whose request was accepted did not apply to get the loan due to the rises in the prices of lands.

[5] The Saudi Arabian Monetary Agency (SAMA) is the Central Bank of Saudi Arabia. Its functions include issuing the national currency (the Saudi Riyal), supervising commercial banks, managing foreign exchange reserves, promoting price and exchange rate stability, and ensuring the growth and soundness of the financial system. SAMA is also operating a number of cross-bank electronic financial systems such as SPAN, SARIE, and SADAD. For more information, kindly revert to SAMA’s website at:

[6] SAMA has issued the implementing regulation for the SA-FLL, the SA-REFL and the SA-MFCL on 24.02.2013. Moreover the Agency has issued the instructions and requirements for obtaining the funding license along side with the required templates on 27.04.2013.

[7] The Saudi Arabian Funding Lease Statute (“Law”), promulgated by the Royal Decree No. M/48 dated 13.08.1433 A.H. corresponding to 03.07.2012 G, published at the official gazette “Um el-Qurah” on 13.10.1433 A.H. corresponding to 01.09.2012 G, (Abbrev. “SA-FLL”).

[8] The Saudi Arabian Real Estate’s Owning and Investment for Non-Saudis Statute (“Law”), promulgated by the Royal Decree No. M/15 dated 17.04.1421 A.H. corresponding to 19.07.2000 G, (Abbrev. “SA-RSOINSL”).

[9] The Saudi Capital Market Authority (CMA) unofficially started in the early 50th, and continued to operate until the government set its basic regulations in the 80th. The current Capital Market Law is promulgated and pursuant to Royal Decree No. M/30 dated 02.06.1424 A.H. corresponding to 31.07.2003 G, which formally brought the Authority into existence. The CMA is a government organization applying full financial, legal, and administrative independence, and has direct links with the Saudi Prime Minister. For more information, kindly revert to the CMA’s website: and the market website:

[10] The Saudi Arabian Registered Real Estate Mortgage Statute (“Law”), promulgated by the Royal Decree No. M/49 dated 13.08.1433 A.H. corresponding to 03.07.2012 G, published at the official gazette “Um el-Qurah” No. 4424 on 13.10.1433 A.H. corresponding to 01.09.2012 G, (Abbrev. “SA-REML”).

[11] The Saudi Arabian Real Estate Funding Statute (“Law”), promulgated by the Royal Decree No. M/50 dated 13.08.1433 A.H. corresponding to 03.07.2012 G, published at the official gazette “Um el-Qurah” on 13.10.1433 A.H. corresponding to 01.09.2012 G, (Abbrev. “SA-REFL”).

[12] The Saudi Arabian Monitoring of Cooperative Insurance Companies Law, promulgated by the Royal Decree No. M/32 dated 02.06.1424 A.H. corresponding to 31.07.2003 G, published at the official gazette “Um el-Qurah” on 24.06.1424 A.H. corresponding to 22.08.2003 G, (Abbrev. “SA-MCICL”)

[13] The Saudi Arabian Monitoring the Funding Companies Statute (“Law”), promulgated by the Royal Decree No. M/51 dated 13.08.1433 A.H. corresponding to 03.07.2012 G, published at the official gazette “Um el-Qurah” on 13.10.1433 A.H. corresponding to 01.09.2012 G, (Abbrev. “SA-MFCL”).

[14] The Islamic Shari’ah is the moral code and religious law of Islam. Sharia deals with many topics addressed by secular law, including crime, politics, and economics, as well as personal matters such as sexual intercourse, hygiene, diet, prayer, everyday etiquette and fasting. Though interpretations of Shari’ah vary between cultures, in its strictest definition it is considered the infallible law of God –as opposed to the human interpretation of the laws. Shari’ah is the main source of law in Saudi Arabia. None of the codified laws issued in the Kingdom may contradict with its rules. For more information, kindly revert to the following webpage:

[15] The Saudi Arabian Implementation Statute (“Law”), promulgated by the Royal Decree No. M/53 dated 13.08.1433 A.H. corresponding to 03.07.2012 G, published at the official gazette “Um el-Qurah” on 13.10.1433 A.H. corresponding to 01.09.2012 G, (Abbrev. “SA-iL”).

January, 2014 Catherine Jaskiewicz
Meyer-Reumann & Partners, Oman Office
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