Saudi Arabia’s Capital Markets Authority (CMA) has announced that foreigners will be allowed to invest in companies that own real estate in the holy cities of Mecca and Medina. It added that the reform would help the economy by “attracting foreign capital and providing the necessary liquidity for current and future projects” in Mecca and Medina. 

The change in the law makes it easier for non-Saudis to invest in the real estate market of the two holy cities. At present they are forbidden by law from buying property in the holy cities, although it is possible to lease property for a maximum of 99 years. 

Polling of high-net-worth Muslims from around the world suggests that there is high demand from international investors to buy real estate in Mecca and Medina. 

A Knight Frank survey last year of more than 500 individuals with capital exceeding $500 million (excluding their primary residence) found that 82 per cent of respondents were interested in buying property in Saudi Arabia. Of those, just under half said they wanted to buy property in Mecca. 

Under the new legislation, foreigners can hold 49 per cent of shares in companies listed on the Tadawul with property in Saudi Arabia, although this right does not extend to strategic investors. Markets reacted positively to the news, with 13 of the 14 companies listed on the main market under real estate management recording gains on Monday. Their average share price rose by 3.59 percent. 

Companies with a particular focus on Mecca and Medina saw the biggest gains in their share price, including Taiba Investments Co. (9.17 percent), Makkah Construction and Development Co. (9.43 percent), Knowledge Economic City (9.89 percent) and Jabal Omar Development Co. (10 percent). 

Real estate investment trusts (REITs) also saw a bump, with Jadwa’s REIT Al Haramein, a fund focused on property in the holy cities, jumping 6.42 percent. The CMA has allowed foreign investors to buy shares in REITs with property in the holy cities since 2021. 

The real-estate market in Saudi Arabia is one of the fastest growing in the world. Vision 2030 targets to increase home ownership amongst Saudis, as well as diversification efforts that have increased demand for commercial and rental properties, are pushing up prices. 

For the time being, a disproportionate amount of the market is focused on Riyadh. The capital has seen the lion’s share of development projects and the greatest demand increase in terms of rental properties.