backOn 27 January 2025, the Saudi Capital Market Authority (“CMA”) approved the ‘Controls for the Exclusion of Companies Listed in the Saudi Stock Exchange (Tadawul) from the Meaning of the Phrase (Non-Saudi) in accordance with the Law of Real Estate Ownership and Investment by Non-Saudis’ (the “Controls”). Pursuant to the Controls and effective from 27 January, non-Saudis are now permitted by the CMA to invest in Saudi companies whose shares are listed on the Saudi stock exchange (Tadawul) and which own real estate within the boundaries of the holy cities of Makkah and Madinah subject to the satisfaction of certain conditions detailed below. The Saudi listed companies would include the likes of Jabal Omar Development Company, Knowledge Economic City, Taiba Investments and Makkah Construction and Development Company.
Prior to 27 January 2025 and pursuant to Article 5 of the Law of Real Estate Ownership and Investment by Non-Saudis (“Article 5”), a non-Saudi person (including companies owned by non-Saudi persons) could not acquire ownership, easements or usufruct rights in respect of properties located within the boundaries of the holy cities of Makkah and Madinah unless such a person was a company listed on the Saudi Stock Exchange, was not engaged in real estate activities, and the relevant properties were fully utilized for their offices or branches, or the practice of their activities in accordance with rules set by the CMA.
Now, following the approval of the Controls by the CMA and in addition to the exception to Article 5 above, a company listed on the Saudi Stock Exchange can acquire ownership, easements or usufruct rights in respect of properties which are located within the boundaries of the holy cities of Makkah and Madinah for a purpose other than their offices or branches, or the practice of their activities, provided that the following conditions are met:
- There shall be no foreign strategic investor owning shares or convertible debt instruments in that listed company. A foreign strategic investor is a foreign legal entity that aims to own a direct percentage in a listed company's shares for a period of not less than two years, for the purpose of contributing in the promotion of the financial or operational performance of that listed company.
- The ownership of natural and legal persons who in the aggregate do not hold Saudi nationality shall not exceed 49% of the shares of the listed company or the convertible debt instruments of that company.
The approval of the Controls by the CMA follows a shift in recent years towards liberalizing foreign ownership in the holy cities of Makkah and Madinah. In early 2021, Saudi Arabia’s Cabinet approved a list of exceptions to Article 5 including (in addition to the exception mentioned above) excepting banks and real estate financing companies licensed by the Saudi Arabian Monetary Authority but owned by non-Saudi persons, provided that their acquisition of real estate is for the purpose of financing Saudi nationals, for their offices or branches, or for the practice of their activities in accordance with the regulations set by the Saudi Arabian Monetary Authority. This was swiftly followed by the CMA’s announcement in late 2021 that it will allow capital market institutions to accept subscriptions of non-Saudis in real estate funds that invest in assets within these holy cities, a decision aimed at promoting investment funds as a tool for financing real estate developers in the region.
Strategically, the Controls align with the CMA’s objectives to (i) promote foreign investment flows and competition in the market, (ii) increase demand for real estate in the Kingdom and (iii) increase the contribution of real estate as a sector to the economic output of the Kingdom. On a more practical level, the move aims to promote ongoing and upcoming real estate projects in the holy cities of Makkah and Madinah in order to support the local economy, increase local employment in those areas and expand social capital.
