Real estate contributions have emerged as one of the most appealing investment tools for investors. Amid the rapid growth of the Saudi economy and a heightened focus on diversifying income resources, these contributions offer a promising pathway to significant financial returns. However, like any investment, true success hinges on a deep understanding of the regulatory framework that governs this field. At first glance, the concept may seem simple—invest your funds in a promising real estate project and await the profits. Yet, the reality is far more nuanced; from drafting contracts that govern the relationships among all parties involved to ensuring compliance with the regulations set forth by the Real Estate General Authority and the Capital Market Authority, investors must equip themselves with a comprehensive grasp of the laws and guidelines shaping real estate contributions.

That is where Dr. Fahad Alrefaei & Partners Consulting & Law Firm steps in as a trusted partner providing essential legal support to the real estate contributions’ investors. Backed by a team of seasoned lawyers, consultants, and experts specializing in Saudi Arabia’s real estate sector, the firm offers holistic services, including empowering investors with a clear understanding of their rights and obligations, crafting contracts that secure their interests, and ensuring seamless compliance with all relevant laws and regulations.

In this article, Dr. Fahad Alrefaei & Partners Consulting & Law Firm will delve into the critical legal insights surrounding real estate contributions, drawing from the Real Estate Contributions Law and its Executive Regulations. We will examine the potential legal challenges investors may encounter and offer practical advice to help overcome them, ensuring safe and successful investments. Whether you are new to the field or a seasoned investor, this guide intends to equip you with the legal knowledge necessary to navigate the complexities of real estate contributions and make well-informed investment decisions with confidence.

"Embarking on a secure and sustainable investment, using legal knowledge as your most powerful tool to navigate the challenges of the real estate contributions market."

Definition of Real Estate Contribution

A real estate contribution is a property development project in which a group of individuals, usually five or more, collaborate to achieve mutual benefit. This involves acquiring property and developing it for purposes such as residential, commercial, industrial, agricultural, or other uses, followed by the sale of the property and the conclusion of the contribution. It is important to note that this does not include real estate investment funds.

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Classification of Real Estate Contributions

Classification of real estate contributions in the Kingdom of Saudi Arabia is based on their size as follows:

• Small contribution: with capital less than SAR fifty million.
• Medium contribution: with capital not less than SAR fifty million and not exceeding SAR three hundred million.
• Large contribution: with capital exceeding SAR three hundred million.

Procedures for Licensing Real Estate Contributions

The application for licensing real estate contributions shall be submitted to the Real Estate General Authority in accordance with the form prepared by the Authority for this purpose, attached with the following:

• 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.
• The property registration number or a valid ownership deed for the real estate involved in the contribution, confirming its validity, integrity, and transferability, as certified by the issuing authority.
• The necessary regulatory approvals, as the case may be, 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.
• A certified economic feasibility study for the real estate contribution, prepared in Arabic by a licensed office in the Kingdom. The study shall include detailed estimates of financial, construction, and marketing statements, projected financial and administrative expenses for all development costs, the anticipated project timeline, project milestones, expected funding sources, and provisions for allocating contingency reserves.
• Description of the real estate contribution’s property.
• Determination of the real estate contribution’s capital.
• Completed Real Estate Contribution Agreement form.
• Agreement with the engineering consultant, specifying the obligations and assigned tasks.
• Agreement with the chartered public accountant, specifying the obligations and assigned tasks.
• Agreement with the real estate contribution manager.
• Agreement with the property owner, if applicable.
• Valuation of the real estate contribution’s property by three accredited valuers.
• Appointment of capital market institution in accordance with the instructions for issuing certificates of real estate contributions issued by the Capital Market Authority.

The Authority shall review the authorization application within a period not exceeding ten business days. It may, upon the need to any additional information or documents , notify the applicant to submit all necessary documents within sixty days from the date of notification of this decision. The Authority may extend this period by an additional thirty days. Otherwise, the application shall be dismissed.

The Authority shall issue a conditional approval for the licensing application to proceed with the licensing procedures or reject the application, providing the reasons for the rejection.

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Details of The Real Estate Contribution Agreement

The real estate contribution agreement shall, at least, include the following:

• Details of the parties to the agreement.
• Name of the real estate contribution, its location, and contact details.
• Description of the real estate contribution’s property.
• Duration of the real estate contribution and the procedures for its extension.
• The real estate contribution’s capital.
• Financial expenses related to the real estate contribution.
• Proposed contingency reserve amount for the real estate contribution, if applicable.
• Breakdown of cash shares and in-kind shares.
• Shareholders’ mechanisms to transfer and dispose of their shares.
• Regulations of borrowing against the assets and funds of the real estate contribution.
• The licensee’s commission for their services.
• Preparation of financial statements and periodic disclosures to shareholders on a semi-annual basis, with an annual review.

Borrowing 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:

• The contribution agreement shall expressly permit borrowing against the funds or assets of the real estate contribution.
• Borrowing shall be approved by the general assembly.
• The borrowing amount shall not exceed half of the capital of the real estate contribution.
• Borrowed funds shall be exclusively allocated to activities related to the real estate contribution.
• All borrowed funds shall be directly deposited into the escrow account.

Requirements for the Real Estate Contribution Manager

The real estate contribution manager shall meet the following requirements:

• Have experience in managing real estate contributions.
• Not have been convicted of a felony or a misdemeanor involving moral turpitude or dishonesty .
• Pass the real estate contributions management program endorsed by the Authority.

Requirements for the Engineering Consultant Practicing in Real Estate Contributions

The engineering consultant practicing in real estate contributions shall meet the following requirements:

• Must be accredited by the Saudi Council of Engineers.
• Must have at least three years of experience in construction, building, and project management.
• Must complete the real estate contributions management program endorsed by the Authority.

Requirements for the Chartered Public Accountant Practicing in Real Estate Contributions

The chartered public accountant practicing in real estate contributions shall meet the following requirements:

• Must be accredited by the Saudi Organization for Chartered and Professional Accountants (SOCPA).
• Must complete the real estate contributions management program endorsed by the Authority.
• Must be registered with the Capital Market Authority in the case of a public offering of real estate contribution certificates.

Requirements for the accredited Valuer Practicing in Real Estate Contributions

The accredited valuer practicing in real estate contributions shall meet the following requirements:

• Must be accredited by the Saudi Authority of Accredited Valuers.
• Must complete the real estate contributions management program endorsed by the Authority.

Obligations of the Licensee in Real Estate Contributions

The licensee shall be obligated to the following:

• Appoint a licensed capital market institution in accordance with the instructions for issuing certificates of real estate contributions issued by the Capital Market Authority.
• Promptly inform shareholders of any significant developments concerning the real estate contribution, including its operations, financial condition, organizational structure, or ownership.
• Avoid receiving any funds related to the real estate contribution, either in cash or through deposits into a private bank account. Ensure all deposits are only made into the escrow account.
• Provide periodic reports to both shareholders and the Authority, including financial, technical, and any additional required reports.

Distribution of Real Estate Contribution Profits

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.

A real estate contribution may distribute interim profits from sale proceeds 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:

• ‌Approval of the shareholders’ assembly.
• ‌The contribution shall be stable and consistently profitable.
• ‌Adequate liquidity shall be available, with a reasonable ability to project future profit levels.
• ‌Distributable profits, as confirmed by the most recent audited financial statements, shall be sufficient to cover the proposed dividend distribution.

The Pivotal Role of Dr. Fahad Alrefaei & Partners Consulting & Law Firm in Empowering Investors to Overcome Legal Challenges in Real Estate Contributions

Real estate contributions in the Kingdom of Saudi Arabia represent one of the most significant investment instruments, benefiting from continuous government support and extensive urban development. Nevertheless, investors in this sector face several legal challenges that could impact the security of their investments and expose them to risks, including potential disputes between the involved parties.

A key legal challenge arises from the insufficient understanding of the regulations governing real estate contributions, including the Real Estate Contributions Law and its Executive Regulations, the rules for escrow accounts, the standards for qualifying and classifying practitioners in this field, and the schedule of violations and penalties as specified in the Real Estate Contributions Law and its Executive Regulations. Additionally, the disclosure and transparency regulations set forth by the Capital Market Authority present further complexities. This lack of understanding can result in poorly drafted contracts or involvement in unreliable projects. Investors also face challenges related to delays in the approval of master plans and unclear provisions regarding shared ownership of assets, which may lead to prolonged legal disputes.

Investors shall adopt a rigorous legal approach that focuses on prevention rather than remedy to address such challenges and ensure secure and successful investments.

First and foremost, the project shall comply with all legal and regulatory requirements, including property registration and the necessary permits issued by the competent authorities.

Secondly, the investor shall review the contracts and terms related to the contribution, seeking the guidance of a specialized lawyer to ensure the protection of their rights and to avoid ambiguous or unfavorable provisions.

Furthermore, the developer or the real estate contribution manager shall be verified, ensuring their commercial history and financial credibility. Since economic policies and evolving legislation impact the real estate market, staying informed about regulatory changes, including those from the Capital Market Authority or the Ministry of Municipal and Rural Affairs and Housing, is a fundamental component of risk management.

Thirdly, the investor shall establish a strong partnership with reputable advisory entities, such as law firms specializing in real estate law, including Dr. Fahad Alrefaei & & Partners Consulting & Law Firm, which provides precise legal counsel and acts as a strategic partner, ensuring compliance with relevant regulations and minimizing the risk of future legal disputes, to ensure a successful and sustainable investment.

Success in the real estate contributions market is not solely contingent upon selecting the appropriate project; it also necessitates a comprehensive understanding of the surrounding legal framework and the adoption of proactive measures to protect the investment. In this manner, investors can effectively convert challenges into opportunities, ensuring substantial returns while minimizing associated risks.

In conclusion, investment in real estate contributions presents a significant opportunity for substantial financial returns; however, it is accompanied by inherent legal and regulatory challenges. Therefore, it is essential for any investor seeking to achieve a successful and sustainable investment to have a thorough understanding of the applicable laws, regulations, and procedures governing real estate projects.

Grasping your rights and responsibilities, evaluating potential legal risks, and seeking guidance from expert legal professionals can distinguish between a secure investment and one laden with uncertainties. As the Saudi real estate market evolves at a fast pace, it is accompanied by ongoing updates in regulations and laws. Consequently, staying informed and planning ahead becomes essential for making well-grounded investment choices.

Therefore, it is highly advisable to consult the trusted legal and advisory expertise of Dr. Fahad Alrefaei & & Partners Consulting & Law Firm to ensure well-considered decisions and safeguard your assets against potential risks. Investing in legal knowledge is just as vital as investing in the projects themselves, as it forms the cornerstone for making informed, strategic decisions that contribute to achieving success and financial security in the field of real estate contributions.

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Your Strategic Partner in the Field of Real Estate Contributions! At Dr. Fahad Alrefaei & & Partners Consulting & Law Firm, we are not merely providers of legal services; we are your strategic partner in achieving the objectives of your project. We collaborate closely with you, offering comprehensive legal advice at every stage of your project, ensuring long-term success .

For more information about our legal services, feel free to contact Dr. Fahad Alrefaei & Partners Consulting & Law Firm via the following communication channels. We are waiting for you!

• Phone: 920012753
• Email: [email protected]

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