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Mortgage of Real Estate in Saudi Arabia: Recent Developments
The Registered Real Estate Mortgage Law (the ‘Mortgage Law’), issued in 2012, was a significant step towards encouraging real estate finance in Saudi Arabia. Until recently, local banks typically took an outright conveyance of the title to real estate (Ifragh) to a nominee entity. The transfer of title structure involves the obligor transferring legal title to a special purpose company, set up by the bank providing the financing, for the duration of the financing. The title to the property would revert to the obligor, once the financing is repaid.
The Mortgage Law has now paved the way for a traditional mortgage structure, whereby the title to the property would remain with the borrower and the bank would obtain a registered mortgage. Some of the key features of the Mortgage Law are as follows:
In May 2017, SAMA issued a circular urging banks and finance companies to:
This circular, in-effect restricts the outright transfer of title and instead requires any security over real property to be registered as a mortgage under the Mortgage Law.
Importantly, following publication of SAMA’s circular, notaries have issued guidelines as to the information banks will be required to present in order to register mortgages. Most notably, banks are required to provide a letter confirming that the debt being secured by the mortgage relates to a Shariah compliant transaction (either a tawarruq, or murabaha). Yet another recent development is the issuance by SAMA of standard form ijara and murabaha documentation to be used when providing real estate finance. The template documents provided by SAMA are expected to be implemented by the end of March 2018.
These legal and regulatory developments, coupled with government sponsored housing schemes, are indications of further reform in the real estate and housing market in Saudi Arabia.
For further information please contact Rafiq Jaffer (R.Jaffer@tamimi.com) or Agathi Trakkidi (email@example.com).
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