Tuesday, 28 January 2025

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REGULATION WATCH

Foreign investors can now buy shares of listed companies that own real estate assets in the holy cities

They are limited to a 49% maximum stake

Foreign investors can now directly buy shares and convertible debt instruments in Tadawul-listed real estate companies with assets in Makkah and Madinah, under the Capital Market Authority’s (CMA) regulatory update (pdf) to the Law of Real Estate Ownership and Investment by Non-Saudis. The move unlocks the option for non-Saudi investors to directly gain exposure to the high-demand property investment market in the holy cities. This comes amid a country-wide push to appeal to more foreign investors, boost capital markets’ liquidity, and lock in additional sources of FDI. The story was picked up by Bloomberg and Reuters.

The change applies to listed real estate firms that either own public or private assets within the holy cities, which grants foreign investors the right to own stocks in four major property developers namely PIF-backed Taiba Investments, Jabal Omar Development, Makkah Construction & Development, and Knowledge Economic City (KEC), according to an SNB Capital note seen by EnterpriseAM.

IN CONTEXT- The CMA greenlit rules, in 2021, allowing non-Saudis to subscribe to real estate funds investing within Makkah and Madinah, but up until now direct investment in company shares or debt instruments was not allowed. Non-muslims remain prohibited from owning property in the holy cities, despite the gradual relaxation of ownership rules in other parts of the Kingdom.

The caveat: Foreign ownership is capped at 49% of a company’s total shares or convertible debt instruments. Meanwhile, foreign strategic investors are entirely excluded from ownership.

What the pundits are saying: SNB Capital believes this change will unlock the value of these high-quality assets, enhance funding channels for future projects, and boost liquidity — potentially paving the way for inclusion in major global indices, the note said. Notably, while Makkah and Jabal Omar are already part of the FTSE Saudi Index, none of these stocks are currently included in the MSCI Index, the note reads.

A potential upside revaluation of assets in the holy cities? Other stocks with assets in Makkah and Madinah — such as Seera Group Holding, Dar Al Arkan Real Estate Development, Jadwa REIT Al Haramain Fund, and SICO Saudi REIT — could also benefit from the potential revaluation of assets in the holy cities, SNB Capital said. Additionally, this shift could fuel investor appetite for new IPOs, mirroring the impact of a similar exemption granted to real estate funds, including REITs, in 2021, according to the note.

Market reax: Stocks of the obvious benefactors from the decision were the main movers on Tadawul yesterday, with all of them closing c. 10% up on market close.