Saudi Arabia said it will begin allowing foreigners to invest in publicly-traded companies owning real estate in the holy cities of Makkah and Madinah for the first time as the kingdom looks to draw in more overseas investment.
Starting today, foreign investors can purchase shares and convertible debt instruments in firms listed on the Saudi stock exchange that own either public or private real estate within the boundaries of the cities, according to a statement from the Capital Market Authority. An exception applies to strategic foreign investors and foreign ownership cannot exceed 49 per cent of a company’s listed shares, the CMA said.
Shares of some real estate firms rose on the news. Jabal Omar Development jumped as much as 10 per cent at the open in Saudi Arabia. Taiba Investments, Emaar Economic City and Makkah Construction & Development, were also among the stocks that climbed.
Saudi Arabia has been undertaking efforts to boost its appeal as an investment destination under the Vision 2030 diversification agenda, including by introducing sweeping reforms to investment laws and loosening rules on foreign ownership in the stock market. The kingdom is also carrying out various expansion projects in Makkah and Madinah as it aims to accommodate 30 million foreign worshippers a year by 2030.
“This is a recognition of the key role that foreign investors have in enabling the recycling of capital into new real estate developments within the kingdom,” Christopher Payne, partner and chief economist for Mena at Knight Frank said of the new rules.
Reits listed in the country “tend to invest across sectors and across the kingdom, so these regulatory changes will likely have a significant impact now, and going forward as more Reits are listed,” he said.
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Non-Muslims are not allowed to own property in the holy cities of Makkah and Madinah, even after Saudi Arabia gradually allowed some foreigners to own property in various parts of the kingdom.
Foreigners can obtain long-term residency in Saudi Arabia by investing US$1.1 million into residential real estate, a rule that was introduced only a few years ago. The two holy cities are coveted locations by investors who see stable, long term demand.
Hotel operators and apartment owners can make sizable return because the religious requirements for every able-bodied Muslim to complete a Hajj pilgrimage once in a lifetime drives demand to the cities. Some funds from Islamic majority countries have obtained long-term leases on towers of residential apartments which are used to cater to pilgrims from their countries.
In 2021, the CMA allowed non-Saudis to subscribe to real estate funds investing within the boundaries of the holy cities, but not make direct investments in company shares or debt instruments. BLOOMBERG
