In 2023, the Law of Selling and Leasing Real Estate Projects Off-Plan (the Off-Plan Law) came into force in the Kingdom of Saudi Arabia (KSA), introducing a new legal framework for the delivery of off-plan real estate development projects.
The Off-Plan Law, alongside the subsequent Implementing Regulations, placed new obligations on developers with compliance overseen by the Real Estate General Authority (REGA), the regulatory body for all development projects in KSA.
The requirements bring KSA in line with other GCC countries as regards off plan sales and the management of joint property, and give greater protection for end users and clarity as to process for developers.
The key areas any prospective developers ought to be aware of are explored in detail below, including recent changes to the White Land Tax.
Who can develop?
The Off-Plan Law requires those wishing to sell or lease real estate projects off-plan to be registered in the Developers Register, which is done electronically via the Etmam platform. Developers are also required to pay a fee for such registration, which at the time of publication of this article is SAR 50,000.
The Off-Plan Law's Implementing Regulations set out a number of requirements developers must meet in order to be admitted to the Developers Register, which involves attaining a 'score' of 35 out of 100 points on a scoring matrix.
Beyond the Off-Plan Law, the Law on Real Estate Ownership and Investment by Non-Saudis permits foreign investors to invest in and develop real estate, provided that:
- they first obtain a licence to do so;
- the development value exceeds SAR 30 million; and
- the development is completed within five years of acquiring the land.
With regards to each development project carried out by a licenced developer, the Off-Plan Law requires that an application be submitted to REGA to obtain a special licence for the specific project, which must be accompanied by a number of documents including:
- a copy of the Developers Register indicating that the developer is licenced to carry out real estate development;
- a valid building permit for the project; and
- the ownership registration instrument to the land being developed.
Are escrow accounts required?
The Off-Plan Law requires that an escrow account be opened in the name of each project for the purposes of spending the money contained within it on the project only. Any financing for the project must be deposited in the escrow account, including any deposits from buyers or tenants. Additionally, developers are required to keep 20% of the project's total value in the escrow account until the project is completed, and 5% of the project's value (or a bank guarantee for the same amount) for at least one year after the completion certificate is obtained.
If it becomes apparent that there are defects in the project following completion, REGA may issue the developer with a decision to repair and may extend the retention of the amount (or extension of the bank guarantee) for a period of six months from the issue of the decision to repair. Should the developer fail to proceed with the repairs within five days of being notified, REGA itself may use the retained amount or confiscate the bank guarantee (to the extent of the estimated cost of repair) to repair the defects.
The Off-Plan Law also requires that a chartered accountant must audit any financial statements relating to the value of the contracted real estate units and ensure that funds are deposited into the escrow account, offering an additional layer of security. Furthermore, upon REGA's request, the accountant must prepare reports on the operations of the escrow accounts, a statement of the project's financial position and expenditures from the escrow account.
Delayed/stalled projects
With regards to delayed or stalled development projects, the Off-Plan Law's Implementing Regulations contain mechanisms for the payment of compensation to buyers/tenants in the event that a project's completion is delayed for more than one year after its duration or is suspended/stalled for more than 180 days at any of the project's stages for reasons within the developer's control. The compensation is as follows:
- If the project is developed land – the compensation will be agreed between the parties, and will be not less than 2% of the sale value calculated on an annual basis;
- If the project is a real estate unit – the compensation will be agreed between the parties, and will be more than the fair remuneration for the unit estimated by an accredited appraiser.
Furthermore, land owners will wish to progress quickly with developments after acquiring land so as to avoid attracting White Land Tax. The Law of White Lands' Fees imposes an annual tax on unused/undeveloped land. Recent amendments to this law have broadened the criteria of land to which the law applies, encompassing land that is:
- unused;
- 5,000 sqm or more;
- capable of being developed; and
- located within urban boundaries.
Under the previous regime, White Land Tax was incurred at a flat rate of 2.5% of the land's value. However, recent amendments to the law which came into force in May 2025 mean that landowners could be taxed annually at a rate of up to 10% of the land's value. Further details as to how the applicable rate will be determined are to be specified in the Implementing Regulations.
Who is responsible for the ongoing management of the development?
Unless agreed otherwise, owners of subdivided real estate units in a jointly-owned property will share ownership and responsibility for any common areas. However, if the property comprises three or more owners, an Owners Association must be established for the purposes of managing the common areas and must be registered with REGA. In the case of off-plan developments, the Owners Association must be registered from the delivery of the second unit.
The primary responsibilities of the Owners Association include property management, representing unit owners and establishing rules governing the development. Through the Owners Association, the unit owners may appoint a manager to carry out the day-to-day management of the property on their behalf. By delegating operational tasks to the manager, property investors are able to focus on business growth as opposed to everyday concerns, marking an important step towards modernised property management in KSA.
Is there a specific disputes process in relation to off-plan developments?
The Real Estate Arbitration Centre was established in 2018 to help settle disputes related to real estate activities, including off-plan sale and lease disputes. The Centre aims to resolve all disputes with final judgments within three weeks. The Centre has jurisdiction to hear disputes so long as the parties have agreed in writing in their contract or a subsequent agreement to arbitrate within the Centre's framework. Awards issued by an arbitration tribunal are final and cannot be appealed (however they may be annulled in limited circumstances set out in Article 50 of the Arbitration Law). The General and Commercial Courts handle real estate disputes that cannot be resolved through alternative methods such as arbitration.
For further insights into real estate regulation in the Kingdom of Saudi Arabia, please contact the International Real Estate team at Trowers & Hamlins.
