New Saudi municipal rules allow 50-year contract, reduced bank guarantee

RIYADH — Saudi Arabia has updated regulations for municipal real estate transactions, allowing the extension of the maximum contract period from 25 years to 50 years and reducing the amount in bank guarantees in a move aimed at attracting investors.

Saudi Ministry of Municipal and Rural Affairs on Wednesday issued executive instructions after updated regulations were approved by Acting Minister of Municipal and Rural Affairs Majed Al-Huqail.

Commenting on the move, Al-Huqail said that the updated regulations aim to provide a fair and attractive competitive environment for investment that will contribute to achieving sustainable economic development.

“It also marks a new phase in the municipal investment, opening the way for all segments to investors to contribute to the development of cities while providing them with suitable investment opportunities,” the minister said.

The updated regulations include a number of amendments, the most prominent of which is upgrading contractual conditions by increasing the maximum contract period from 25 years up to 50 years in order to stimulate projects that need huge capital investments.

The amendments also include grace periods with the size of the construction, in addition to reducing the value of bank guarantees and changing it from the value of at least one year’s rent to at least 25 percent of the annual tender value.

There were also amendments to raise the quality of investment offers through ensuring the availability of qualified investors and verification of their eligibility before launching projects that require specialized expertise; involvement of private sector and the empowerment of mayoralties and municipalities to partner with them through various models, including sharing revenues, renting gardens, and achieving optimal use of municipal real estates. This will be through shortening the period of construction of public parks from five years to two years so as to boost the spread of parks and their development.

The updated amendments also include an increase in the investment return on long-term contracts by reviewing the rental return every five years instead of being fixed for the duration of the contract, in addition to allowing temporary leasing and enabling municipalities to rent their properties on a daily, weekly or monthly basis, or in accordance with the organization of events and parties to take advantage of vacant municipal properties and invest them, in addition, to enhance the well-being of the community by holding events and parties.