| 18 May 2006 |
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Saudi Arabia: Expatriates Can Invest in Real Estate Funds
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JEDDAH: Once again, Saudi Arabia is opening the door for expatriates to invest in the Kingdom - this time in real estate investment fund, which are expected to be approved next month. In a bid to increase transparency and public involvement in the decision-making process, the Saudi Capital Market Authority (CMA) has recently posted on its website an initial draft of the regulations covering real estates investment funds.
The Chairman of the CMA, Abdulrrahman Al-Tuwaijri, said in a television interview with the Al-Arabia Satellite channel, that the authority has posted this bulletin following lengthy discussions with specialists.
However, Al-Tuwaijri said the draft is not final and that it has not been approved yet, and he encouraged those who are concerned with the new regulations to send their suggestions to the CMA, either by phone or e-mail.
The draft rules deal with the regulations related to the establishment of real estate investment funds, licensing of fund managers, investors' rights and market transparency. The rules also require a fund manager to distribute any fund profits at the end of each quarter of the financial year.
Al-Tuwaijri said organizing real estate investment is a crucial part of organizing the larger financial situation in the Kingdom. And he denied that the decision to establish real estate investment funds is any kind of alternative to the Kingdom's stock market, which has witnessed a recent steep decline.
"People have been investing in real estate for a long time," Al-Tuwaijri said. "It is just a matter of organizing this industry."
Real estate in Saudi Arabia has been in the spotlight for a long time until the stock market began to take-off, attracting investments more than 5 million Saudis, many of them middle-income wage earners and retirees on limited incomes.
It is estimated that SR1.5 trillion has been invested in real estate - about half the total invested in the Arab Gulf. However, according to Reuters, around 60 per cent of Saudi real estate investment motivated by speculation, fueled a huge rise in land prices in some Saudi cities during the last 10 years.
Only a fifth of the total investment is led by organized real estate firms, while businessmen complain of a lack of regulation and oversight by government officials and of difficulties obtaining financing.
Saudi real estate developers have called for the establishment of a government body to oversee their interest and protect the market from the speculation that is driving up land and building prices.
The general director of the Saudi Company for Properties and Assets Evaluation, Ibrahim Al-Mahwoos, was recently quoted by an Arabic daily saying that property prices and values were not getting enough attention from the government.
"Unlike other professions, real estate pricing lacks the required regulations and restrictions that govern those who practice it, whether experts or mediators, which largely affected the evaluation of the market," the director said.
Several companies, he added, are pushed to open separate departments for real estate evaluation just because there are no independent firms specializing in valuing buildings and land. Such firms are necessary and need to be created in Saudi Arabia, he said, emphasizing the importance of them working neutrally.
He said those companies should not be involved in buying or selling buildings or land in order to avoid conflict of interest and to ensure objectivity. At the same time, he warned that the lack of supervision will lead to market manipulation.
Real estate investors last week criticized the absence of the CMA representatives from the eighth real estate summit that was held Sunday, May 7 in Riyadh.
Though demand for housing in Saudi Arabia is increasing, especially among the middle class, unlicensed real estate investment is estimated at SR33 billion.
By Sabria S. Jawhar
© The Saudi Gazette 2006
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