Real Estate Finance Law in Saudi Arabia

The Real Estate Finance Law in the Kingdom of Saudi Arabia consists of a set of rules that govern real estate financing within the Kingdom. It outlines the terms, responsibilities, and obligations related to real estate finance. This law was issued by Royal Decree on July 3, 2012, and comprises fifteen articles.

As per Article Two of the Real Estate Finance Law, the Saudi Central Bank (SAMA) regulates the real estate sector, including:

- Allowing banks to engage in real estate finance activities through the ownership of dwellings for finance purposes, in accordance with this law and its regulation.

- Licensing real estate finance companies in accordance with this Law and the Finance Companies Control Law.

- Licensing a joint stock company (or more) for real estate refinance according to market needs. The Public Investment Fund may become a co-owner of such company. SAMA approves nominations for board membership. Licensed finance entities may also become co-owners of such company. A portion of the shares of the company is offered to the public in accordance with the Capital Market Law.

- Licensing cooperative insurance companies to cover real estate finance risks in accordance with the Cooperative Insurance Companies Control Law.

- Issuing real estate finance standards and procedures, reviewing real estate finance contract templates issued by the real estate finance entities, and ensuring their compliance with such standards and procedures for the required protection of consumers and borrowers.

- Publishing data related to the real estate finance market and sponsoring development of real estate finance technologies, including technologies to facilitate the flow of data between primary and secondary markets.

- Determine the principles for the disclosure of finance cost and method of its calculation to enable consumers to compare prices.

Article Three of the Real Estate Finance Law in the Kingdom requires real estate finance entities to engage in real estate finance activities in a manner not conflicting with Sharia principles, based on decisions made by Sharia committees, and without prejudice to the integrity and equity of the financial system.

Article Thirteen stipulates that, without prejudice to the provisions of Article Three of this law, real estate finance entities may refinance through: real estate refinance companies, in accordance with the provisions of the law and the regulation; or securities, in accordance with the provisions of the Capital Market Law.

Article Four stipulates that the Ministry of Commerce, the Ministry of Justice, and the Ministry of Finance must regularly publish, each within their jurisdiction, information related to the real estate market in accordance with market needs and as determined by the regulation.

The Real Estate Finance Law requires real estate registration entities (courts and notaries public) to enable licensed real estate finance entities to access their real estate records. Real estate finance entities and real estate re-finance companies may insure against real estate finance risks through cooperative insurance.

According to Article Seven of the Real Estate Finance Law in the Kingdom, the borrower must have a credit record with one of the service providers licensed pursuant to the Credit Information Law in which his credit history throughout the finance period is noted. The regulation and SAMA’s instructions specify the minimum retention period of the borrower's record and data therein during the finance period.

The Real Estate Finance Law necessitates the Real Estate Development Fund to allocate a portion of its approved budget as guarantees and aid to subsidize real estate finance for subsidy-eligible individuals and housing societies. The government, as per the Real Estate Finance Law, guarantees the fulfillment of financial obligations resulting from the guarantees of the Real Estate Development Fund to subsidize real estate finance within the approved budget allocations of the fund.

Upon a proposal by the Minister of Finance, tax incentives for investment in real estate securities may be granted pursuant to a resolution by the Council of Ministers.

Mortgage transfer procedures in the secondary market of real estate finance are exempted from registration fees stipulated in the Real Estate Registration Law.

The competent court settles disputes arising from real estate finance contracts and impose the penalty stipulated in paragraph One of Article Thirty-Five of the Finance Companies Control Law on any borrower who persists on being in default.