Frequently Asked Questions About Real Estate Contributions

1. What are Real Estate Contributions?

A real estate contribution refers to a real estate development project in which multiple individuals collectively participate with the purpose of deriving financial or economic benefit through the acquisition of real estate, followed by its development into residential, commercial, industrial, agricultural, or other permissible uses, and ultimately its sale and liquidation of the contribution. It shall be emphasized, however, that real estate contributions, as defined herein, do not encompass real estate investment funds.

2. What are the powers of Real Estate General Authority Regarding Real Estate Contributions?

Without prejudice to the powers of other government authorities, the Authority shall be responsible for regulating real estate contribution activities in accordance with the provisions set forth in the applicable laws and regulations. In particular, the Authority shall have the following powers:

1- Issuing, amending, and revoking licenses. The regulations shall specify the necessary conditions, requirements, and procedures for such actions.

2- Classifying real estate contributions based on size, type, or location, and establishing the appropriate conditions, requirements, and timeframes for each real estate contribution accordingly.

3- Establishing the qualification and classification criteria for property developers for the purpose of offering real estate contributions.

4- Establishing the qualification and classification criteria for contributors.

5- Establishing the principles governing the entitlements of the licensee in consideration of their fees and the commissions they receive.

6- Regulating and overseeing real estate contributions.

3. What are the requirements for offering real estate contributions?

A real estate contribution may not be offered, advertised, marketed, or have funds solicited or collected in connection therewith, except upon obtaining the approval of the Capital Market Authority and securing a license from the Real Estate General Authority, subject to the verification of the following conditions:

1- The property underlying the real estate contribution shall be owned pursuant to a valid and effective title deed, with its legal integrity duly confirmed by a certification from the issuing authority.

2- The property underlying the real estate contribution shall have obtained all necessary approvals for its development from the competent authorities.

4. What is the minimum number of contributors required for a real estate contribution?

A real estate development project shall be subject to a real estate contribution license issued by the Real Estate General Authority if it involves five or more contributors.

5. What is the Classification of Real Estate Contributions?

Real estate contributions shall be classified by size, as follows:

A. A small contribution with capital of less than SAR 50 million.

B. A medium contribution with capital of not less than SAR 50 million and not more than SAR 300 million.

C. A large contribution with capital exceeding SAR 300 million.

6. How to obtain a real estate contribution license?

The license application shall be submitted to the Real Estate General Authority, attached with the following:

1- A certificate issued by a licensed credit service provider, verifying the applicant’s clean credit record. Such certificate shall be dated no earlier than (three months) prior to the submission of the application.

2- The property registration number or a valid title deed for the property underlying the real estate contribution, confirming its validity, integrity, and transferability, as certified by the issuing authority.

3- The necessary regulatory approvals, as required, from the Ministry of Municipal, Rural Affairs, and Housing, the Ministry of Energy, the Authority, or other competent authorities in accordance with their respective regulations.

4- A certified economic feasibility study for the real estate contribution, prepared in Arabic by a licensed office in the Kingdom. Such study shall include detailed estimates of financial, construction, and marketing metrics, projected financial and administrative expenses for all development costs, the anticipated project timeline, implementation phases, expected funding sources, and provisions for allocating contingency reserves.

5- Description of the property underlying the real estate contribution.

6- Determination of the real estate contribution’s capital.

7- A real estate contribution agreement form.

8- Agreement with the consulting engineer, specifying the obligations and assigned tasks.

9- Agreement with the chartered accountant, specifying the obligations and assigned tasks.

10- Agreement with the real estate contribution manager.

11- Agreement with the property owner, if applicable.

12- Valuation of the property underlying the real estate contribution by three accredited valuers.

13- Appointment of a financial market institution in accordance with the instructions for issuing certificates of real estate contributions issued by the Capital Market Authority.

7. May a contributor legally dispose of their share in the real estate contribution?

A contributor may dispose of their share in the real estate contribution subject to the following conditions:

1- The contribution agreement shall include a mechanism for disposal.

2- The disposal shall be subject to the regulations governing the issuance of real estate contribution certificates as issued by the Capital Market Authority.

8. May the licensee be permitted to borrow against the funds or assets of the real estate contribution?

The licensee may borrow against the funds or assets of the real estate contribution, subject to the following conditions:

1- The contribution agreement shall expressly permit borrowing against the funds or assets of the real estate contribution.

2- Borrowing shall be approved by the general assembly.

3- The borrowing amount shall not exceed half of the capital of the real estate contribution.

4- Borrowed funds shall be exclusively allocated to activities related to the real estate contribution.

5- All borrowed funds shall be directly deposited into the escrow account.

9. What is the minimum percentage of ownership required for the licensee in the real estate contribution?

The licensee shall maintain an ownership interest of no less than five percent (5%) in the real estate contribution and shall retain such ownership until the completion of the real estate contribution.

10. What are the eligibility criteria and requirements that shall be met by the real estate contribution manager?

The real estate contribution manager shall meet the following requirements:

1- Have sufficient expertise and experience in managing real estate contributions.

2- Not have been convicted of a felony or a misdemeanor involving moral turpitude or dishonesty.

3- Have completed the real estate contributions practice program approved by the Authority.

11. What are the eligibility criteria and requirements that shall be met by consulting engineer?

The consulting engineer shall meet the following requirements:

1- Have been accredited by the Saudi Council of Engineers.

2- Have at least three years of experience in construction, building, and project management.

3- Have completed the real estate contributions practice program approved by the Authority.

12. What are the eligibility criteria and requirements that shall be met by the chartered accountant?

The chartered accountant shall meet the following requirements:

1- Have been accredited by the Saudi Organization for Chartered and Professional Accountants (SOCPA).

2- Have completed the real estate contributions practice program approved by the Authority.

3- Have been registered with the Capital Market Authority in the case of a public offering of real estate contribution certificates.

13. What are the eligibility criteria and requirements that shall be met by the accredited valuer?

The accredited valuer shall meet the following requirements:

1- Have been accredited by the Saudi Authority of Accredited Valuers.

2- Have completed the real estate contributions practice program approved by the Authority.

14. What are the powers and obligations of the licensee in a real estate contribution?

The powers and obligations of the licensee shall be as follows:

1- Securing all the necessary requirements and approvals for license issuance in compliance with the provisions of the regulations.

2- Appointing the real estate contribution manager, overseeing their activities, and ensuring they are enabled to fulfill their responsibilities.

3- Appointing a chartered accountant and an consulting engineer for the real estate contribution.

4- Opening an escrow account in the name of the real estate contribution with a licensed bank.

5- Carrying out and managing disbursements from the escrow account in accordance with the prescribed disbursement procedures.

6- Entering into the necessary contracts for the benefit of the real estate contribution.

7- Borrowing against the funds or assets of the real estate contribution in accordance with the provisions of the law and regulations.

8- Selling the assets of the real estate contribution in accordance with the provisions of the law and regulations.

9- Presiding over the assembly or appointing a representative.

15. What are the obligations of the licensee in a real estate contribution?

The licensee shall be obligated to comply withthe following:

1- Appointing a licensed financial market institution in accordance with the instructions for issuing certificates of real estate contributions issued by the Capital Market Authority.

2- Promptly informing shareholders of any significant developments concerning the real estate contribution, including its operations, financial condition, organizational structure, or ownership.

3- Avoiding receiving any funds related to the real estate contribution, either in cash or through deposits into a private bank account, and all deposits shall only be made into the escrow account.

4- Providing periodic reports to both shareholders and the Authority, including financial, technical, and any additional required reports.

16. What are the powers of real estate contribution manager?

The powers and responsibilities of the real estate contribution manager shall be as follows:

1- Ensuring that all returns are deposited into the escrow account.

2- Distributing the profits of the real estate contribution in accordance with the provisions of the law and regulation.

3- Notifying the licensee and the Authority of any event or material development that may impact the real estate contribution.

4- Reviewing and archiving reports on the activities of the contractor, consulting engineer, and chartered accountant in the real estate contribution.

5- Holding assembly meetings.

6- Carrying out the sale of real estate contribution assets pursuant to the authorization granted by the licensee and in accordance with the procedures set forth in the regulation.

7- Submitting periodic reports to all relevant parties, including the Authority, the Assembly, and the Licensee.

8- Communicating with relevant authorities regarding the real estate contribution.

9- Performing any other tasks assigned by the licensee, within the scope of the real estate contribution activities.

17. How are the profits of the real estate contribution distributed?

1- Distributable profits are derived from the net income of the contribution, minus any amounts set aside for reserves allocated for specific purposes as specified in the contribution agreement, if applicable.

2- A real estate contribution may distribute interim profits from sale revenue to its shareholders on a semi-annual or quarterly basis, if explicitly allowed under the contribution agreement and subject to the fulfillment of the following requirements:

A. Approval of the shareholders’ assembly.

B. The contribution shall be consistently profitable.

C. Adequate liquidity shall be available, with a reasonable ability to project future profit levels.

D. Distributable profits, as confirmed by the most recent audited financial statements, shall be sufficient to cover the proposed profits distribution.

3- The contribution manager shall immediately and without delay disclose to the Authority and the contributors upon making a decision to distribute profits.

18. How is the real estate contribution liquidated?

The assets of the real estate contribution may not be sold unless they have been assessed by accredited valuers in accordance with the Accredited Valuers Law, subject to the following provisions:

1- The assets of the real estate contribution shall be assessed by three independent valuers who are not affiliated with the licensee and are accredited in accordance with the Accredited Valuers Law.

2- The valuation shall be approved by the assembly. The assembly shall be entitled to request a revaluation, provided that such request does not exceed two instances.

3- The period between the valuation report and the sale date shall not exceed three months.

4- The sale procedures shall be conducted by the licensee or the real estate contribution manager, in accordance with the provisions of the contribution agreement.