It has been reported that the Saudi Arabian Shoura Council (the Kingdom's consultative body) has approved an amendment to the Saudi real estate and investment legislation to allow non-Saudis to acquire real estate in Saudi Arabia. In a related move, it has also been reported that the Shoura Council made amendments to the draft mortgage law this month. It is generally recognised that a significant number of new houses are needed to be built in Saudi Arabia within the next five years to meet housing demand. These legislative moves are designed to help meet this demand and encourage greater bank lending.

In theory, it is currently possible, under existing laws, for a borrower to grant security over real estate in Saudi Arabia by way of a pledge, perfected in part by the recording by notaries public of the pledge on the property title documents. However, on the presumption that lending from commercial institutions will involve provisions for interest, notaries in Saudi Arabia have historically refused to notarise mortgages of real estate in favour of commercial lenders. In a commercial context, banks and financiers have side stepped this by using less than ideal alternative structures, such as Ifragh (which requires the borrower to transfer title of the property to a special purpose vehicle of the lender until the loan has been repaid). However, no such alternatives exist for individuals in a residential context.

The proposed new mortgage law in Saudi Arabia has been almost a decade in the making. It is uncertain when the law will be implemented, following the initial approval given by the Shoura Council in June 2008. The new mortgage law will provide a framework for the mortgaging and financing of real estate. It is expected that the law will consist of five parts, introducing:

  • a mortgage registration law - on registration requirements, priority (probably depending on the time of registration ) and steps to enforcement;
  • a real estate funding law (allowing banks to undertake real estate funding);
  • a finance companies control law (setting out requirements for licensed finance and real estate finance companies);
  • a financial leasing law (on leases of land and other property); and
  • an execution and enforcement law (on the enforcement of a mortgage).