Saudi Arabia allows foreign investment in Makkah, Madinah real estate firms

The act underline the Kingdom's commitment to making its capital market a key funding source for development

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Saudi Arabia has announced a landmark decision allowing foreign investment in listed companies that own real estate within Islam’s holiest cities, Makkah and Madinah. The move, unveiled by the Saudi Capital Market Authority (CMA), aligns with the Kingdom’s Vision 2030 strategy to diversify its economy and attract foreign capital.

Effective immediately, foreigners can invest in shares or convertible debt instruments of companies owning property in these sacred cities. However, foreign ownership is capped at 49% of a company’s shares, and strategic foreign investors are prohibited from holding stakes in these entities.

The CMA stated the initiative aims to stimulate investment, enhance the capital market's competitiveness, and provide liquidity for ongoing and future developmental projects in Makkah and Madinah. These reforms support the Kingdom's ambition to reduce reliance on oil revenues and boost foreign direct investment (FDI), with a target of $100 billion by 2030.

The pilgrimage sector, a significant contributor to Saudi Arabia’s economy, plays a central role in this effort. In 2019, the Kingdom earned approximately $12 billion from Hajj and Umrah, and it aims to welcome 30 million pilgrims annually by 2030.

The CMA highlighted that foreign investment in Makkah and Madinah's real estate sector is part of broader reforms, including allowing non-Saudis to invest in the Saudi stock market, access swap agreements, and directly acquire debt instruments. Previously, in 2021, the CMA permitted non-Saudis to subscribe to real estate funds focusing on properties in the two cities, paving the way for this recent development.

While foreigners remain restricted from directly owning property in the holy cities, they are allowed to lease properties under specific conditions. This reform aims to align Saudi Arabia with neighboring countries that allow foreign property ownership in designated zones.

The announcement sparked a positive reaction in the stock market. Real estate firms with significant holdings in Makkah and Madinah saw their share prices surge. Knowledge Economic City’s stock rose by 9.89% to SR16.66 ($4.44), Jabal Omar Development Co. increased by 10% to SR25.85, and Makkah Construction and Development Co. climbed by 9.84% to close at SR106.

These measures underline the Kingdom's commitment to making its capital market a key funding source for developmental projects, enhancing its appeal to regional and international investors, and strengthening the local economy.