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Buying PropertyBack to top Back to main Skip to menu
Saudi Arabia - Buying Property
The government has set up incentives to boost the real estate market in Saudi Arabia. Money is currently being invested in building more homes to cater to the demand. In the next few years, it is expected that 500,000 new units will be built. In addition, mortgage laws are being adjusted to encourage residents to access loans so that they can invest in the real estate industry.
Another solution to this problem is the relaxing of real estate laws so that expats can buy property in Saudi Arabia. Expats are allowed to purchase property for commercial or residential purposes. They can also invest in private land, which they can develop as long as they have approval from authorities. Mecca and Medina, considered by many Muslims to be holy cities, are the only places expats cannot purchase real estate, as the country is trying to keep Saudi religion and culture intact. However, a migrant can own property in either city through inheritance.
To be able to buy property, you need approval from the ministry of interior. Factors considered before you get approval include your profession and financial background. There are a few factors you might want to consider before you decide whether renting or buying is the best option. If you crave flexibility, then renting is an ideal option for you. The duration of your stay should also be considered. If you intend to stay in Saudi Arabia for a long time, then buying could save you lots of hassle. Buying property can be an investment, but be ready to take into account how much you will need. Costs such as mortgage processing fees, maintenance, settlement cost, down payments and building insurance should be considered.
You can make a final decision regarding buying property in Saudi Arabia once you have weighed the pros and cons. The cost of owning property in Saudi Arabia includes the cost of land and the total value of the land where the property will be developed. The price is usually negotiated between the buyer, seller and a facilitator. You might need a lawyer to arrange a private estate sale or draw up a contract. Once the agreement has been negotiated, the buyer is required to go to the local sharia court to confirm the land is owned by the seller. The court will record a transfer of title and the title document will be stamped to confirm the same. The process takes about six days to complete.
When it comes to the mortgage market in Saudi Arabia, the country has the lowest penetration globally, making the rates of mortgage quite low. The reason for the severe shortage of housing is as a result of lack of home finance. The majority of the homes are paid for with cash, and it is only recently that banks have aggressively marketed home finance. In addition, most of the financial institutions do not offer mortgage services or financing to expats looking to own property. There are two main options when it comes to property financing: fixed rate, known as murabaha, and variable rate, known as ijarah. The ijarah financing is a rate that adjusts after two years and comes with a prepayment penalty.
Most modern homes in Saudi Arabia are built close together to save space. A wall separating properties is usually raised to enhance privacy. Town house models are becoming increasingly popular because they often have large living spaces and are quite affordable. Many Saudis like to build homes with communal living spaces.
When it comes to buying a house in Saudi Arabia, there is the salary transfer or no salary transfer concept. In other parts of the world, payments are made voluntarily, while in Saudi Arabia, most banks will expect you to set up a direct debit. This means that once your mortgage is approved, you will sign a form that allows the property financing institution to make automatic deductions from your income. You will not able to move your income to a different bank without the approval of the mortgage firm.
Other banks allow no salary transfer. This is where you are expected to make a specific payment, and are given a deadline of when it should be issued. The disadvantage with this method of property financing is that its interest rate tends to be a bit higher. Most expats are expected to use the salary transfer option, while the no salary transfer is reserved for Saudi Arabian citizens.
When buying a house through home finance, the paperwork is sharia compliant, meaning you will not be charged interest. Instead, it will be referred to as profit. The contract complies with the Islamic law and therefore, you will not be charged unrealistic late payment fees. Another feature of the sharia compliance is that an individual cannot be foreclosed unless this is the last resort.
Sellers prefer cash buyers, and this sometimes means people lose bids on houses that they had already put a down payment on. Therefore, once you sign a contract on a home, make sure the financing has been approved to prevent the seller from selling the house even after signing a sales contract. It is important to get pre-approval before beginning your house hunting process because property cases in courts often take a long time to resolve.
The process of buying a home for expats can be long and convoluted because you need permission from the ministry of housing. Getting the permission can take up to a year. That is why most people prefer ijarah financing. Ijarah is more like renting the house from the bank as the house belongs to the bank until you have completed your payments. However, there is one financial institution that offers a flexible program to expats.
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