Real estate legislation in the Gulf and its relevance to international investment
This article sets out some of the headline changes which have taken place in the real estate sector in the region, and in particular will highlight changes in legislation of interest to non-national investors, developers, and business owners.
The ongoing changes to Saudi Arabian development policy are spurred on by the Kingdom's Vision 2030 strategies. The real estate sector has been highlighted as an area where further foreign investment should be sought.
The current regulations are contained in the Law of Real Estate Ownership and Investment by Non-Saudis and ownership laws in KSA are currently the subject of discussion, and changes so far have been to permit foreign investment in the holy cities of Mecca and Medina. This considerable shift in access for investment may mark the beginning of broader changed.
The most recent legislative change that affects the broader market however has been a move towards modernisation of registration formalities. The Saudi Cabinet has begun the process of amending the regulation of the General Real Estate Authority so that its primary role going forward will be to register properties and property ownership with a view to supporting the development of non-governmental real estate activity.
An important feature of the new project is the granting of title documents which are unappealable and so will demonstrate a clear ownership right.
This reform of real estate reflects the investment goals of the Kingdom more broadly, aiming to encourage real estate investment (which currently can be by GCC nationals, licensed foreign vehicles or residents) by making the process clearer and more efficient. With numerous megaprojects underway in the country, and with further reform promised, the market is making significant steps to attract international investment.
The island nation of Bahrain has, since the introduction of the Real Estate Regulatory Authority (known as RERA) in 2017 developed a series of cohesive, and development focussed real estate laws which aim to govern everything from leasehold management to owners' associations. This legislative backbone has allowed confidence to grow in the sector.
The most recent legislative changes revolve around joint property ownership.
Firstly 'Resolution 1 of 2020 Regulating Owners Associations of Joint Properties' provides a development management framework for both simple and complex developments. It appears that RERA is moving away from structures where there is little input by the end users in the upkeep and maintenance of common infrastructure and moving towards schemes which give the actual owners and end users a level of control over the common areas within a development. This Resolution permits developments to have a number of management layers (with up to three layers) including a Central Owners' Association, Main Owner' Associations and Subsidiary Owner Associations. New and existing developments are required to change their structure to fall in line with this Resolution and there is the possibility to permit existing projects to convert to joint properties where it was not the developer's original intention.
More recently 'Resolution No 5 Of 2021 Regarding A Special Registry for Joint Properties' under which an obligation is created for the registration of joint property ownership, and powers are granted to the Survey and Land Registry Bureau (the SLRB) to administer the process. The centralised register is designed as a repository for information on development land for joint property, any dispositions made in respect of that land or units built on it and any judgments made in relation to that land. The SLRB will be able to issue title documentation for shared/common areas and to formally administer related applications.
The broad thrust of property legislation in Bahrain is to develop and more actively administer development property, the end result of which should be a more navigable and clearer system of property management.
Abu Dhabi has historically taken longer than Dubai to liberalise its property market. However, the changes in legislation that were implemented mid-way through 2019 are notable in that they bring their parity in ownership rights across Dubai and Abu Dhabi. There appears to be a concerted effort to attract investors who are not UAE or GCC nationals.
With the passing of 'Law No. (13) of 2019, amending certain provisions of Law No. (19) of 2005 on Real Estate Ownership' the Abu Dhabi government made changes to real estate laws allowing foreigners to own freehold property and is applicable in designated zones.
Freehold ownership carries with it the ordinary meaning (i.e. ownership of land to the exclusion of others) and there are no inherent reversionary rights, as investors would have been familiar in seeing (for example musataha or usufruct purchases). Along with this change comes the ability for foreign investors to mortgage real estate, which was previously disallowed.
Part of the ongoing initiative to attract investment into the sector has included the recent appointment of "real estate conciliators". The role of such a person in real estate disputes is to arbitrate between parties at approved mediation centres, with a view to neutral and professional resolution. The goal is to inspire a confidence for foreign investors that, in the event of a dispute, there is a transparent and efficient dispute resolution mechanism.
With the decree of 'Cabinet Resolution No. 28 of 2020' the Office for Non-Qatari Real Estate Ownership was created, with a remit to enable non-Qatari persons to own real estate in nine areas in the country. This can be on an individual or corporate basis. The resolution grants foreign nationals the right to own a detached unit in a residential complex while owning a second detached unit (an office or a shop) in a commercial mall, provided that the owner does not modify the nature, shape or appearance of either unit. As with elsewhere in the region, the aim behind this legislation is to attract expatriates, foreign investors and international funds to Qatar's real estate market.
In additional to the above resolution, was the introduction of the Qatar Financial Centre (QFC) Real Estate Ownership Regulations, which allow for investors to use QFC entities to own or acquire usufruct rights in the relevant designated areas. Of note also is that purchasers of a property worth 3.65 million riyals ($1 million) or above will be automatically eligible for permanent residency in Qatar.
The Sultanate has, similarly to most regional states, been making legislative changes to attract foreign capital. To date this has focused largely on corporate investment but there have been certain changes affecting real estate.
Most recently the Ministry of Commerce, Industry and Investment Promotion has outlined a new scheme for 'Investor Residence' visas, which would offer non-Omanis the opportunity to make investments in property with a five or ten year residency in exchange. Fuller details have not been made available at the time of publication, but it is expected that thresholds and conditions will soon be provided.
This new initiative comes less than a year after 'Ministerial Decision 357 of 2020' under which the Sultanate now permits the ownership of usufruct rights by individual expatriates. Non-Omanis are able to purchase property to live in, rent out (after an initial period of four years), or to use as collateral for any financial transactions. The Decision permits expatriates to acquire usufruct rights for an initial term of up to 50 years which can be extended up to 99 years. In order to qualify under the scheme, the buyer must be purchasing a property in a multi-storey (4+ floors), residential or commercial mixed-used building within specified locations. There is a minimum purchase price of OMR 45,000 for licensed units in the Governorate of Muscat and OMR 35,000 when the scheme is introduces to other Governorates. In terms of who can benefit from the scheme, the usufruct rules will apply to non-Omani buyers aged 23 or over, who have been resident in Oman for at least two years.
This snapshot of legislative updates across the region related to real estate paints a broadly cohesive image that inward investment is to be promoted, and that environments for safe, sophisticated opportunities to arise are being worked out. Although not without its imperfections the sector continues to develop, and with certain uniform characteristics geared towards inviting foreign interests.