Shares of Saudi property companies got a strong boost after the kingdom approved a new law that will lead to the creation of designated zones where foreigners are able to own property.
Retal Urban Development Co. and Saudi Real Estate Co. were among leading gainers, with each climbing more than 5% and powering the Tadawul Real Estate Management and Development Index to the highest since May.
The moves follow Saudi Arabia’s decision on Tuesday to update rules for property ownership by non-Saudis. It plans to allow foreigners to own real estate in specified areas, namely in Riyadh and Jeddah, while “special requirements” will remain for the holy cities of Mecca and Medina, according to the state-run Saudi Press Agency.
The Real Estate General Authority will be responsible for proposing the designated areas. More specifics on the rules and implementation are still to come, but the law is set to take effect in January of next year.
That “will likely have a very positive and broad implication for a number of sectors in the kingdom and the region,” said Junaid Ansari, director of investment strategy and research at Kamco Invest. “It will not only help the real estate names, but it will also be a boost for cement companies and banks in the kingdom.”
Saudi Arabia has been moving to open its property market further to foreign investors in recent years as it seeks to draw in more international funding and boost the local economy. It may also be seeking to ease the process for overseas investors, who have in the past faced a lengthy and laborious process to securing an investment.
Earlier this year, the kingdom eased rules giving investors from abroad the right to own shares in real estate companies developing in Islam’s holiest sites.
The changes announced this week may be modeling some of the success that has been struck elsewhere in the Middle East. Dubai, Abu Dhabi and Qatar have implemented specifically designated zones where foreign buyers are able to buy property.
The model has been a particular success for Dubai. The emirate’s property demand surged after the government allowed foreigners to buy in designated zones in 2002. Since then, the number of areas have increased, drawing hundreds of billions of dollars from foreign investors into the Gulf city.
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