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The Real Estate General Authority (REGA) is out with executive regulations for the newreal estate contributions (REC) law, which went into effect in July 2023. The rules regulate how groups of five or more people can come together to develop a real estate project.
A license to develop a project through contribution is based on the size of the project, requires a clear financial plan, and will need to have a qualified manager.
Uh, Enterprise? What’s a real estate contribution? It’s a financial strategy where individuals pool their resources to collectively invest in a property. Some might contribute cash, others could contribute in-kind assets (think: land) or services. Under the rules for the REC, any in-kind contribution needs to be valued by independent appraisers, while cash contributions will have to be deposited in an escrow account.
They come in three sizes: A small contribution is worth less than SAR 50 mn, while a medium-sized one is in the SAR 50-300 mn range, and a large project is defined as being worth more than SAR 300 mn, according to the rules.
The regulations, in brief:
- A REC has to have a minimum number of 5 contributors;
- RECs can have partial stakes and / or full ownership of properties;
- The licensee can contribute property instead of funds, only if the property will be made headquarters for the REC. After transferring the property to the REC, the licensee’s stake in the REC will be in the form of ownership in the property they contributed, and after the first year they can choose to convert 50% of that into shares in the REC with all its managed properties;
- Only one REC can have the license of a certain property in a given period;
- Contributors must hold a stake of at least 5% in the REC;
- The Authority has ten days to review the license application and may ask for additional information.
