Riyadh city
The Capital Market Authority (CMA) approved on Feb. 14 instructions on offering real estate contributions certificates in the Saudi capital market, which will come into effect as of the publication date.
On the positive side, the market regulator ordered the capital market institution through which the certificates will be offered to provide sufficient information about the subscription, including the start and end date. The subscription period was set at 90 days maximum. In case the offering is not completed, it will be cancelled, and the funds injected will be refunded to subscribers without any deduction within 10 days maximum from the end date.
The regulatory body mandated that the offering must be conducted by a capital market institution licensed to engage in arranging activities. The type of offering, whether public or private, must be predetermined. Sufficient information must be provided to real estate contribution investors to enable them to make informed investment decisions. Accordingly, it will be easier for subscribers to understand the level of real estate contribution and the track record of the capital market institution before proceeding with subscription.
According to the new regulations, private offerings specify real estate contribution certificates for three categories of investors: qualified clients, institutional clients, and retail clients with specific restrictions on the last one. The capital market institution must submit a written application to the regulatory body for approval, accompanied by the private offering notice for real estate contribution certificates.
The capital market institution conducting the offering and the licensed entity must provide a declaration affirming the accuracy of the information in the offering document. Approval from the Real Estate General Authority (REGA) and meeting other specified requirements and conditions are also required,. The authority’s greenlight for the public offering of real estate contribution certificates serves as approval for the offering, which in turn mitigates fraudulent practices that some might engage in when presenting potentially fake or overvalued real estate projects to investors.
The regulations impose restrictions on retail clients in case of a private offering, limiting it to 100 clients or less, with an individual subscription cap of SAR 200,000. There is an upper limit for the total raised funds in both public and private offerings, set at SAR 100 million per contribution, helping control fluctuations in individual stock values and facilitating profit distribution.
The regulations entrust the capital market institution with the responsibility of organizing the shareholders’ registry, preventing contributors from neglecting the documentation process that safeguards the rights of all participants before and after the contribution process.
The anticipated positive impact of the regulations on investor confidence, the creation of new financial and investment channels for real estate developers and investors, and the enhancement of regulatory oversight in the real estate sector in the Kingdom are expected outcomes of the registration and offering regulations for real estate contribution certificates.
The contribution is defined as a real estate development project in which a group of individuals collaborates to achieve a benefit. This involves owning and developing real estate for residential, commercial, industrial, agricultural purposes, etc., followed by the sale and termination of the contribution. This definition excludes real estate investment funds.