CORPORATE INFLUX AND SHORT-TERM RENTALS IN SAUDI ARABIA
The influx of international companies into the Saudi market; in addition to the 2024 policy mandating overseas companies to establish regional headquarters in Saudi Arabia, has elevated demand for office spaces. Corporate executives visiting the Kingdom have created a significant opportunity for the real estate market in Saudi Arabia leading to rising demand for short-term rental properties, prompting various rental and property management ventures to enter the Saudi real estate market and creating a significant opportunity for market impact. Recent analysis reflects that revenue from short-term rental services in Saudi Arabia is expected to exceed USD $600 million in 2024, propelled by the policies encouraging tourism and foreign investments, and the new bylaw approved by the Saudi Ministry of Tourism allowing citizens to rent their homes to tourists. Airbnb, HomeAway, and Vrbo are amongst the early birds to expand their presence in Saudi Arabia as the market for short-stay and short-term rental accommodations is expected to reach annual growth of 1-2 percent in the initial years, while the number of users in the vacation rental market is projected to reach 5.39 million by 2028.
OFFICE SPACE AND INDUSTRIAL GROWTH IN SAUDI ARABIA
Demand for office spaces across the Kingdom, specifically in Riyadh, has witnessed a record growth rate of 23.6% as off Q3 2023 with a substantially higher rate of 92 percent for occupiable supply. Dammam and Khobar’s office market also recorded growth across all segments in Q3 2023, starting with Damman with an average rental growth of 7.5% and 9% growth rate in Khobar. In addition, the industrial and logistics sector in Riyadh has witnessed around 30 percent increase in average rents to SAR 195 per square meter. Jeddah’s industrial and logistics rents have marginally softened, while Dammam and Khobar experienced improvements of 19.8 percent and 16 percent. The substantial increase in average rents reflects somehow the shortage of such prime office spaces and units at strategic locations and the robust growth and development in these areas.
FOREIGN INVESTMENT AND REAL ESTATE FINANCING IN SAUDI ARABIA
Taimur Khan, Head of Research – MENA at Global Commercial Real Estate Services (CBRE) in Dubai, anticipated that the real estate market to perform strongly driven by shortage of prime office spaces, high-quality facilities at strategic locations, and the influx of new international companies.
The Chairman of the Saudi Capital Market Authority (CMA), Mohammed Elkuwaiz, announced the intention to allow non-Saudi nationals to invest in listed companies owning real estate in Makkah and Madinah signals the rapid growth in the real estate financing sector. The CMA’s decision to opens new investment opportunities for non-Saudis in these holy cities, aligning with the broader Vision 2030.
TOURISM BOOM AND REAL ESTATE EXPANSION
Following the Covid 19 pandemic, Saudi Arabia marked a remarkable progress within the tourism industry attracting 27 million foreign tourists in 2023, while the goal is to welcome 150 million visitors by 2030. The Tourism Development Fund, with financing worth SAR 35 billion, has played a crucial role in supporting major projects aimed at developing the tourism sector, with contracts signed for the establishment of 75,000 hotel rooms, targeting for a total of 550,000 rooms by 2030 and indicating a promising and thriving real estate market in Saudi Arabia.
Saudi Minister of Tourism Ahmed Al-Khateeb stated that the Saudi Arabian government aims to attract 150 million visitors by 2030: contributing SAR 750 billion to the national economy in light of the country’s vision for economic diversification.
INVESTOR CONFIDENCE AND FUTURE OUTLOOK
The Real Estate Future Forum held in Riyadh early this year marked a strong start with agreements and memoranda of understanding (MoUs) worth more than SAR100 billion being signed during the event, underscoring investors’ confidence, as further the contribution of the real estate activities to the non-oil GDP marks 12.2%. In addition, the Kingdom’s commitment to addressing housing challenges, introducing, and activating financing products, and delivering thousands of residentials units has created a positive outlook as population is expected to highly increase, specifically by 127% in Riyadh by 2030.
Such outlook fosters attraction and interest from foreign investors seeking to capitalise on the expansion and development of real estate sector in the Kingdom.
CONSTRUCTION BOOM AND PRIVATE SECTOR PARTICIPATION IN SAUDI ARABIA
Saudi Arabia remains the largest construction market in the Middle East, with real estate and infrastructure projects that exceed USD 1 trillion, including more than 1.3 million homes by end of 2030. Regulatory frameworks by the Saudi government focus on increasing private sector contribution in relevance to the objectives of its vision 2030. These reforms include reducing requirements for developers and expanding industrial areas, demonstrating growth strategies for the construction sector to reach 8.8% of nominal GDP by 2030.
REAL ESTATE PREMIUM RESIDENCY IN SAUDI ARABIA
Given the exceptional opportunities in the real estate market for investors and the government’s proactive measures to position Saudi Arabia as a key player in the global real estate market, Saudi Arabia recently unveiled a specialized residency initiative aimed at offering long-term residency program to individuals who invest in real estate. Foreign investment in real estate has a multiple impact, contributing in the long run to the development of infrastructure and urban projects, stimulating the construction of new residential and commercial properties, generating job opportunities, and bolstering the overall real estate sector.
The eligibility criteria for the newly introduced premium residency specifically targeted to individuals who own real estate include:
- Ownership of real estate assets with a minimum value of SAR 4 million within Saudi Arabia
- The property must be free from existing and future mortgages
- Property ownership or utilization should not be associated with real estate financing
- The real estate must be for residential purposes
- The real estate must be developed and not from undeveloped or unimproved lands
- The real estate asset must be appraised by accredited valuers within the Saudi Authority for Accredited Valuers, known as “Taqeem”
Residency duration is tied to either real estate ownership or usufruct, and individuals are required to pay a one-time fee of SAR 4,000.
In return, holders of the premium real estate residency will be eligible for the following benefits:
- Reside in Saudi with family members, including parents, spouses, and dependents under the age of 25.
- Flexibility to move between different entities.
- Exemption from fees imposed on expats, their dependents, and companions.
- Ease of exit and return to Saudi for the premium residency holder and their dependents without requiring a visa.
- Entitlement to obtain visit visas for relatives.
- Utilization of dedicated airport tracks as that for citizens.
- Entitlement to work in the private sector and move between entities for the husband, wife, and dependents.
- Conducting business.
- Ownership and usufruct of real estate.
REAL ESTATE LICENSING IN SAUDI ARABIA
The ambitious initiatives and Giga projects undertaken by the Kingdom, such as NEOM, the Red Sea tourism project, and the Qiddiya entertainment city, offer significant investment potential for foreign investors and leaders in the real estate industry. Diverse activities are available for investment licensing ranging from real estate development, brokerage services and construction activities, including:
- Buying, selling, and subdividing of land and real estate, and on-the-map selling activities.
- Management and leasing of real estate with own or leased property (residential).
- Management and leasing of real estate with own or leased property(non-residential).
- Management and leasing of Self storage units.
- Residential Real estate development using modern construction method.
- Commercial Real estate development using modern construction methods.
- Real Estate Brokerage.
- intermediation in real estate management.
- Real Estate valuation.
- Real property registration services.
- Real Estate consultancy.
- Construction of all types of residential buildings.
- Construction of all types of non-residential buildings including schools, hospitals, hotels … etc.
Notably, the Real Estate General Authority (REGA) in July 2023, announced major reform permitting 100% foreign ownership in real estate brokerage activity, driving economic diversification, and fostering collaboration with private sector in the Kingdom’s real estate strategic objectives. If you’re considering setting up and expanding your business to Saudi Arabia, exploring these opportunities can be highly lucrative and strategic.
SAUDIZATION
As part of the localisation initiatives in Saudi Arabia and the vision set for the growth of the real estate sector, the Ministry of Human Resources and Social Development (MHRSD) in coordination with the real estate authority enforced localisation in the real estate sector during the Q2 2021, creating more employment opportunities within the real estate and contributing to increasing numbers of citizens entering the real estate industry. Over the span of two years, the number of Saudis employed in real estate has surged by more than 100 percent.
The number of Saudi nationals working in real estate professions were around 12,000 to surge up to 116% during the year; with over 26,000 Saudi nationals employed in the real estate sector. Numbers are further expected to increase given the pivotal role the MHRSD has played in the establishment of the national training campaign, Waad, in collaboration with the private sector. This campaign has committed to providing 1,155,000 training opportunities for Saudis by the end of 2025.
The localization decision encompasses various aspects, including 100% restricting real estate brokerage professions Saudi workers. This category includes roles like real estate brokers, sales and rental brokers, land and real estate brokers, registration clerks, marketers, owners’ association directors, real estate managers, as well as sustainable building professions and real estate control professions.
Furthermore, the decision mandates the localization of 70 percent of the total workforce in public establishments involved in real estate activities, whether in owned or rented properties, activities based on fees or contracts, or other sub-activities. However, it stipulates that the number of Saudis in the establishment should not be less than one as a minimum.
TAKEAWAY
The real estate sector in Saudi Arabia is currently experiencing expansion and significant changes contributing to the continued growth of the nation’s non-oil GDP. The real estate sector in Saudi Arabia offers attracting opportunities and incentives for both local and international investors, supported by robust regulatory frameworks, residency programs and Giga investments in the construction and real estate market. The visionary policy, significant projects, and dedication to Saudization also positions the sector for continuous growth.
Contact our team to explore your opportunities within the real estate industry for a compliant entry into the Saudi market. Whether it’s understanding eligibility criteria or streamlining documentation requirements, our team of professionals is here to assist you through the application process, ensuring a smooth and efficient experience. We are dedicated to simplifying the incorporation of your company and ensuring on-going business and compliance support with all necessary processes.
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