Saudi Arabia Opens Doors to Foreign Investment in Companies with Mecca and Medina Real Estate

In a significant move to boost foreign investment and enhance market liquidity, the Saudi Capital Market Authority (CMA) has announced that foreign investors are now permitted to invest in Saudi companies listed on the Saudi stock exchange that own property within the holy cities of Mecca and Medina.

This decision, effective immediately, follows the approval of regulations that exempt these listed companies from the restrictions outlined in the Foreign Ownership of Real Estate Investment Regulations.

This landmark decision is expected to have a profound impact on the Saudi capital market. By allowing foreign investors to participate in companies with real estate assets in these holy cities, the CMA aims to:

• Stimulate Investment: Attract foreign capital, thereby increasing investment activity and overall market liquidity.
• Enhance Market Efficiency: Improve the efficiency and competitiveness of the Saudi capital market on both regional and international levels.
• Support Economic Growth: Contribute to the overall economic growth of Saudi Arabia by fostering development projects in Mecca and Medina.
• Increase Market Attractiveness: Position the Saudi capital market as a more attractive investment destination for both domestic and international investors.

The new regulations governing foreign investment in these companies outline specific guidelines:

• Investment Scope: Foreign investment will be restricted to shares of listed companies or convertible debt instruments, with a collective ownership limit of 49% for non-Saudi individuals and entities.
• Strategic Investor Exemption: Foreign strategic investors are exempt from this ownership limit.
• Real Estate Focus: The regulations specifically target companies with real estate assets within the boundaries of Mecca and Medina.

These regulations aim to provide a framework for foreign investors to participate in the economic growth associated with projects in these holy cities while ensuring compliance with existing laws and regulations related to foreign real estate ownership.

Furthermore, the regulations allow listed Saudi companies to acquire ownership, usufruct, or use rights over properties designated for their headquarters or branch offices within Mecca and Medina, provided these properties are solely used for this purpose and adhere to the relevant exceptions within the Foreign Ownership of Real Estate Regulations.

This latest move by the CMA builds upon a series of initiatives aimed at enhancing the accessibility and attractiveness of the Saudi capital market to foreign investors. These initiatives include:

• Direct Investment: Allowing resident foreign investors to directly invest in the Saudi stock market.
• Swap Agreements: Facilitating foreign investor access to the Saudi stock market through swap agreements.
• Foreign Financial Institution Investments: Permitting qualified foreign financial institutions to invest in listed securities.
• Strategic Investments: Allowing foreign strategic investors to acquire strategic stakes in listed companies.
• Direct Debt Investments: Enabling foreign investors to directly invest in debt instruments.

In 2021, the CMA further expanded foreign investor participation by allowing them to invest in real estate funds focused on properties within Mecca and Medina.

This move aimed to diversify financing channels within the capital market and align with the objectives of Saudi Vision 2030, which prioritizes attracting both domestic and foreign investment.

The final version of these regulations was developed following a public consultation process conducted on November 15, 2023. The consultation, conducted through the Istitalah platform (a unified electronic platform for public and government agency feedback) and the CMA's official website, sought public input on the "Regulations for Foreign Investors' Ownership of Shares in Saudi Listed Companies with Investment Properties in Mecca and Medina."

This significant regulatory change is expected to have a positive impact on the Saudi economy, attracting foreign capital and fostering economic growth within the holy cities of Mecca and Medina.

By creating a more inclusive and attractive investment environment, the CMA continues to play a crucial role in supporting the long-term development and diversification of the Saudi capital market.