The Land Titles System and Practice in the Kingdom of Saudi Arabia

The Realty in Kind Registration Law (‘RKR Law’), issued by Royal Decree No. M/6 on 9/2/1423H,
was enacted to create a transparent land identification, ownership and registration system which
will ultimately cover all real estate in the KSA.

Pursuant to the RKR Law, a copy of the cadastre called a ‘title deed’ is issued to the owner of a
plot of land or a building once the ownership is entered into the cadastre (Article 67). This title
deed certifies and confirms the ownership of a plot of land or a building. Article 2 of the RKR Law
provides that “[t]he register shall have an absolute confirmation power, and its content may not be
objected after the elapse of the defined periods for objection stipulated in this law, unless based
on the breach of the Sharia requirements, or on forgery of such”.

However, the application of the RKR Law is still limited to specific areas and is unlikely to be
implemented beyond these areas. The predominant practice in KSA is that of titling and
conveyancing through notaries (under the Ministry of Justice along with the courts) pursuant to
Executive Regulation of Notaries Public Jurisdictions (‘Notaries Regulations’), Ministry of Justice
Circular 13/T/2460 on 25/5/1425. If a plot of land is located in an area where the RKR Law has not
been implemented, the document certifying and confirming the ownership of a plot of land or a
building is a title deed issued to the owner by a regional government employee of Shari’ite
qualifications (‘Notary Public’) or a court.

In 2015, for example, the Ministry of Justice passed a resolution No. (5135) dated 4.3.1437 AH
providing that the RKR Law applies to certain real estate zones (as indicated in the resolution).

 
Manual and Electronic Titles

Historically, title deeds in KSA were handwritten. However, since 2008, the Ministry of Justice has
been implementing an initiative to convert all handwritten title deeds into an electronic format.

In regards to their content, we note that title deeds are in Arabic only (except for titles created by
the Economic Cities Authority) and reference to the Municipality plot numbers. They also record
details of proprietorship and may note mortgage details or other covenants. What is recorded on
the title must be in accordance with Shari’a Law.

Pursuant to that initiative, any transaction concerning an old handwritten deed requires conversion
into the electronic format prior to formalising any transaction or any dealing with the land.

In addition, the Ministry of Justice provides a researchable electronic database where one can
enquire about land ownership by filling in the electronic title deed number of the plot.

 
Conveying Title

Dealings with real estate in KSA are principally carried out according to a well-established and
traditional process involving private negotiations followed by the participation of the Notary Public,
who completes a change in ownership and records such details in a register retained by the
Ministry of Justice.
Additionally, the Registered Real Estate Mortgage Law (‘Mortgage Law’), issued in 2018, has now
paved the way for a traditional mortgage structure, whereby the title to the property would remain
with the borrower and the bank would obtain a registered mortgage.

However, the requirement for registration is subject to the type of transaction, the parties to the
transaction (whether they are individuals or companies) and their nationality.

For a transaction involving Saudi or GCC citizens, the following requirements must be met (with
the provision of the indicated documentation):

1. the attendance of the parties to the Sale and Purchase Agreement or their representatives
providing official documents (ID/proof of representations);
2. the original electronic title deed;
3. the registered payment method;
4. the sub-division document of the property if the transfer relates to a part of the property;
5. the approval of the Agricultural Development Fund, if the property is agricultural; and/or
6. if the property is mortgaged, the mortgagee’s consent.

For a transaction involving a foreign investor(s), the documents above are required in addition to
the following:

1. the approval of the competent authority (e.g. Ministry of Interior / Ministry of Foreign
Affairs/SAGIA) on the purchase; and
2. the fulfilment certificate from the Ministry of Finance (regarding the sale).

The Real Estate General Authority (‘REGA’) and Potential changes.

Whilst the land titles system in place is quite functional, we understand that, in due course, the real
estate regulation including the land titles systems and practices are likely to be moved from the
various ministries currently responsible for this to REGA. A land titles law is currently under
consideration and it is anticipated that this will address:

1. more detailed titled deeds including the ability to search these by plot number and name of
the owner;
2. the ability to record covenants and easements against titles and for the obligations pursuant
to these to be enforceable by the beneficiary of such rights;
3. the ability to register Master Community Declarations and Owners Association documents
against the titles and for these to be binding on the owners;
4. the ability for REGA to prevent the transfer of title pending receipt of the approval of the
master developer or and owners association;
5. more advance titling options such as the sub-division of parts of mixed use buildings; and
6. possibly the option to record title details in English and Arabic.

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Who can Own Property in Saudi Arabia?

Gulf Cooperation Council (‘GCC’) nationals and GCC companies (with shareholders who are all GCC nationals)
have certain rights to own land, subject to a number of restrictions. A GCC company or a GCC national may
lease or purchase land to use it to conduct any licensed business activity from the land, and may own residential
properties in Saudi Arabia, except for properties within the vicinity of Mecca and Medina.

Foreigners (being non-GCC nationals or companies who are not 100 percent owned by GCC nationals) have
certain rights to own land and property in Saudi Arabia. The Foreign Ownership of Real Estate Regulation
(enacted by Royal Decree No. M/15 dated 17/04/1421H, corresponding to 19 July 2000) regulates the
acquisition by foreign, non-GCC nationals, of real estate in Saudi Arabia. Under this regulation, the ownership
and investment in real estate by a foreign investor is permitted, subject to obtaining a foreign investment licence
from the Saudi Arabian General Investment Authority (‘SAGIA’).

A non-GCC development company may, subject to certain licencing conditions by SAGIA, own real estate in
connection with a particular project for property development provided that the construction of buildings is for
investment purposes (whether through sale or lease), and is carried out by a Saudi Arabia licensed contractor.

A non-GCC entity may own Saudi Arabian real estate that is reasonably required for (i) the conduct of its
professional, technical or economic activities, including for its headquarters and warehouses, or (ii) private
residences for housing employees of licensed projects, or (iii) residential use by individuals with normal legal
residency status.

Foreign owned entities are restricted from acquiring any right of property in real estate within the borders of the
cities of Mecca and Madina. There are also ownership restrictions whereby other resolutions of the Saudi
Council of Ministers, and royal decisions expressly prohibit the acquisition of real estate in specified locations.

There are other rules whereby a foreign individual may own property in Saudi Arabia if he has normal legal
residency status and has a permit from the Ministry of the Interior.

It must be pointed out that Saudi Arabia has a strict anti-fronting law, which must be carefully considered when
structuring investments through an entity.

Titling and the Registration System

The Realty in Kind Registration Law, issued by Royal Decree No. 6 on 9/21423H, creates an efficient and
transparent land identification, ownership and registration system which will ultimately cover all real estate in the
Kingdom. This law is also supported by the following laws relating to surveying of land and the sale of units in a
building:

 The Law of General Survey Authority; and

 The System of Ownership of Units, Estates, units, apartments and their Sorting, issued by Royal Decree
No. 5 on 11/2/1423H, corresponding to 24/4/2002.

In practice, however, the system remains less structured than as set out in the above laws and the practice
could be compared with a “deeds system” whereby ownership was traced through the various contractual
agreements between buyer and seller, with the “First Notary Public” completing a change in ownership and
recording such details in a register retained by the Ministry of Justice. The practice may vary in different regions
and separate rules may apply in the Economic Cities.
 

Economic Cities

There are a number of economic cities which are at development stage in Saudi Arabia, namely the King
Abdullah Economic City, the Knowledge Economic City, the Prince Abdulaziz bin Mousaed Economic City and
the Jazan Economic City.

Regulations have been issued by the Economic Cities Authority for the registration of all foreign companies
established in the economic cities, the registration of all land title deeds in the name of foreign entities
established in the economic cities and the issuance of licences and other approvals to service providers such as
district cooling, warehousing, logistics, etc in the economic cities.

REITs

In 2016, the Capital Market Authority introduced new rules allowing the formation of Real Estate Investment
Traded Funds (‘REITs’) on the Saudi Stock Exchange (Tadawul), in an effort to open the real estate market to
investment by a wider range of investors. The rules cover the management, operation, and ownership of the
REITs.

Subscription in a REIT is open not only to Saudis, but also GCC citizens and non-Saudi residents in Saudi
Arabia. Non-resident foreign investors are also allowed to trade in the units of the REITs on the Tadawul.

Off Plan Sales

On 6 September 2016, Resolution No. 56 concerning the Regulations on the Sale of Off Plan Real Property was
passed to provide added consumer protection in relation to off-plan sales.

Prior to making any off-plan sales, a developer will have to register the project with the Off-plan Sale Committee
at the Ministry of Housing. The developer will have to show that it has the financial ability to carry out the project
and that it has put sufficient guarantees in place, in particular, opening an escrow account to ensure that
collections from unit purchasers for a particular project are properly channelled towards that project in question
and not spent on other unrelated projects.

The regulation also provides for the supervision of the construction progress by a consultation office (accredited
by the Organisation of Saudi Engineers), which will provide quarterly technical reports on the project status until
completion.

Mortgage of Real Estates

The Registered Real Estate Mortgage Law was issued in 2012.

This new law is to create certainty over the priority of a debt secured by a registered mortgage and to do away
with the practice whereby banks would cause the borrower to make an outright transfer of title to the real estate
to a nominee named by the banks for the duration of the financing, with title reverting back to borrower once the
financing is repaid.
An important aspect of the law is that the debt being secured by the mortgage must not relate to a conventional
finance whereby interest in payable, but must be pursuant to a Sharia’ compliant financing transaction under
KSA laws.

Jointly Owned Property

The Law of Proprietorship and Sorting of Real Estate Units promulgated under the Council of Ministers
Resolution No. 40 dated 09/02/1423 AH and endorsed by Royal Decree No. M/5 dated 11/2/1423 AH, as
amended, and the Executive Regulations promulgated under Ministerial Resolution No. (11985) dated 21/2/1424
(the “Jointly Owned Property Laws”) governs the formation of homeowner’s associations and the management
of jointly owned property.

The Jointly Owned Property Laws lay down the foundation to ensure that the jointly owned property is managed
in accordance with good industry practice, including maintenance of the common areas and management of the
homeowner’s association funds and shared assets. The level of implementation of such homeowner’s
association laws is variable and often developers retain a management role in such buildings.

As the popularity of ownership of apartments is likely to grow, the Ministry of Housing has taken a greater role in
supporting and regulating homeowners associations and has recently published a “Bylaw” setting out best
practices in relation to the internal operations of homeowners associations.

Value Added Tax

The Kingdom of Saudi Arabia along with the United Arab Emirates (“UAE”) were the first countries in the GCC to
introduce Value Added Tax (“VAT”). VAT has been implemented and is payable from 1 January 2018.

As with the UAE, supplies of commercial real estate will be standard rated at five percent (5%) per annum.
Unlike the UAE, however, where the first supply is zero-rated, supplies of residential real estate will also be
standard rated, except for supplies by way of lease which shall be exempt.

Sales of occupied commercial buildings may also constitute sales of a business and therefore fall outside the
scope of the VAT law.

Etmam

Etmam (Developers Services Centre) is a government initiative aimed at facilitating real estate developers
through various stages of their development projects.

Etmam has, as its permanent members, the Ministry of Housing, the Ministry of Municipal and Rural Affairs, the
Ministry of Justice and others.

In essence, Etmam acts as liaison centre by following up with the relevant authorities to avoid inordinate delays
in the licencing and approval process for real estate developments, in particular, residential and commercial
projects comprising more than 50,000 square metres.

Among other things, Etmam facilitates the developer in respect of the following:

 Approval for subdivision of land;

  Approval for comprehensive development schemes;
 Issuance of building permits;
 Issuance of building completion certificates;
 Issuance of off-plan sales licences; and
 Issuance of off-plan marketing licences within Saudi Arabia for off-plan projects outside Saudi Arabia.

Etmam also welcomes communications from developers and holds periodic meetings in an attempt to overcome
unnecessary project obstacles and ensure continuous improvement of Etmam’s services.

Ejar

The Ministry of Housing in Saudi Arabia recently launched its Ejar rental service e-network. Landlords and
tenants (including expatriates) can now download an app, which allows the user to:

 search for licensed real estate agents for renting property;

 check the landlord’s or tenant’s identity prior to the conclusion of the tenancy agreement;
 check the unit ownership and authority of the landlord’s representative;
 report violations to the supervisory team at Ejar, including brokers charging excessive commissions,
brokers charging commissions on renewal of tenancy agreements, brokers colluding with the aim of
manipulating the rent, and landlords failing to register the tenancy agreements on the Ejar network.

Real Estate General Authority

The Real Estate General Authority was established by the Council of Ministers Decision No. 239 of 25/4/1438.
The purpose of the Authority is to enhance transparency, stimulate investment and provide consumer protection
in the real estate industry.

The Authority has already started working on enhancing transparency by developing price indicators (selling and
rental) and other indicators pertaining to construction progress.

To incentivise investments, the Authority has conducted several local and international comparisons with the aim
of implementing the best practices based on the global experiences from reputable real estate regulators in
Australia, the United States, Hong Kong, Singapore and the United Arab Emirates. It is understood that the
Authority will also be coming up with proposed changes in the regulations in order to reduce the number of
property disputes and their processing time.

Further, the Authority aims at organising various training programs and accredited courses in an endeavour to
increase skills and quality among the various stakeholders in the real estate market.

Idle/ White Land Tax Law

The government of Saudi Arabia has introduced a tax on undeveloped urban land, the so-called “white lands”.

The Tax Law on vacant lands is purported to achieve the following:

 increase the availability of land for development in order to achieve a balance between supply and
demand;
  provide residential land at a reasonable cost; and
 encourage fair competition and combat monopolistic practices.

The tax rate levied on vacant lands owned by non-government persons is at the rate of 2.5% of the value of the
land, payable per annum.

Though not an unreasonably high amount in itself (when compared to other similar land taxes in other
jurisdictions), when vacant land remains non-income producing, there is less incentive on the land owner to hold
the undeveloped land.

This new tax is consistent with the Saudi Arabian Government’s policies for stimulating development and
increasing affordable housing across the Kingdom.

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