Launching Vision 2030 and diversifying the inputs of the Saudi economy
With the launch of Vision 2030 for the Kingdom of Saudi Arabia, several diverse economic and tourism sectors have witnessed many development and launch processes. The new vision aims to expand the Kingdom’s economic inputs, not being largely limited to oil revenues and oil refining, but rather participating with several other sectors, such as real estate, tourism of all kinds, industry, technology, and agriculture, among the most important wealth. Saudi Arabia with a future that guarantees development for the Saudi citizen and companies operating in the Kingdom alike is real estate and its development.
Saudi real estate is the next to participate in the overall Saudi economy, and the Kingdom seeks to increase the participation rate in the value of Saudi real estate further by encouraging the ownership of residential real estate and investing more in real estate funds and real estate stocks.
Real Estate Demand in Saudi Arabia
The country has witnessed significant economic growth and urban development in recent years, making it a favorable environment for real estate investments.
The Saudi real estate market is stable, and in recent years the demand has increased with development. Demands for residential, commercial and industrial real estate vary.
Saudi Arabia’s Vision 2030 plan aims to diversify the economy, which is expected to drive demand for real estate, especially in sectors such as tourism, entertainment and logistics.
Because foreign investment is a major driver of project development, the government has taken measures to encourage foreign investment in the real estate sector, making it more accessible to international investors.
High Demand in Saudi cities with Economic Activity
Degrees of real estate demand for the Kingdom’s real estate vary, but there is some high demand in commercial cities or those that include international oil companies or ports.
Among the most important major cities in the Kingdom that facilitate obtaining a profit and a good real estate return are Jeddah and Riyadh, which are major areas for real estate investment, with the increasing population of Saudis and expatriates for work and tourism and the demand for different types of real estate.
Legal Requirements for Real Estate Investment in the Kingdom
There are many legal requirements for real estate investment in Saudi Arabia. It is best for any foreign investor to seek the help of an expert or person who is familiar with the Kingdom’s laws and regulations governing the purchase and ownership of real estate.
Among the things to consider:
- Investment permit: Foreign investors must obtain a permit from the General Investment Authority (SAGIA) before embarking on real estate investment.
- Type of property: Local laws must be checked regarding the type that can be purchased or invested by foreigners, as there are some restrictions on some real estate properties.
- Real estate registration: All real estate must be registered with the local real estate registration department.
- Taxes: Fees and taxes related to real estate and real estate investment must be paid.
Types of real estate available for investment in Saudi Arabia
In order to decide to invest in a new type of real estate, you must first know the most important types of real estate available for investment, which are:
- Residential properties: apartments – villas – traditional Saudi houses.
- Commercial real estate, shops and shops in areas, neighborhoods and commercial centres.
- Administrative real estate, offices and areas for companies.
- Hotel and tourist real estate and chalets.
Return on Real Estate Investment
Return on investment is one of the most important investment terms that must be known before choosing any property or starting real estate investment. In general, return on investment is the net profit value after deducting operating expenses, taxes, fees, and maintenance, if any.
To calculate the return on real estate investment, the following formula can be used:
Net annual income is the income you earn from the property after deducting all costs such as property taxes, maintenance costs, management costs, and any other expenses.
– The total investment cost includes the cost of purchasing the property, any rehabilitation or renovation costs, and financing costs (if you borrowed to purchase).
The Investment Return Value of Different Properties
When looking to invest in commercial real estate, you can expect high returns on investment (ROI). The return percentage can start from around 8% and easily reach up to 15%, and may be higher in some strategic areas.
There are also notable differences in contract lengths for commercial properties compared to residential properties. Typically, lease terms for commercial properties start from 3 years and extend to 10 years or more, while lease terms for residential properties are shorter and usually range between 3 and 5 years.
These differences reflect the different nature of investing in commercial real estate and residential real estate, and provide diverse opportunities for investors.
When purchasing an apartment or residential property for the purpose of using the right to rent it, the return on investment (ROI) is calculated as follows
Rental value per year = monthly rent value x 12 months
Return on investment = (annual rental value – expenses (maintenance and costs) ÷ property price)%
Factors on Which the Return on Real Estate Investment Depends
There are factors that make the real estate investment return diverse and must be known before choosing the property and its location, which are:
- Location: The location of the property is an important factor that affects the return. Properties in desirable areas typically attract higher rents and higher resale values.
- Property type: The type of property can affect the return. For example, residential apartments typically have different rents than commercial buildings or industrial properties and are often lower but easier and cheaper to rent.
- Investment costs: Purchase costs, maintenance and taxes must be taken into account when calculating the return.
- Increase in value: Real estate can increase in value over time, increasing the return if sold at a profit.
- Renting, flipping real estate, or selling: If you invest in renting, your return depends on the value of the rentals and the continuity of renting the property.