Saudi Arabia Sets Strict Rules to Allow Advance Sales of Homes

Riyadh City Skyline, Construction And King Abdullah Financial District

Construction of homes in the Arab world’s largest economy failed to keep pace with neighboring United Arab Emirates partly because developers have been unable to fund construction through advanced sales, known as off-plan.

Photographer: Waseem Obaidi/Bloomberg
  • Down payments should not exceed 20 percent of the total value
  • Developers must deposit checks, payments into escrow accounts

Developers in Saudi Arabia will be allowed to sell homes before they are built under new rules published on Tuesday, though authorities will keep tight controls on how the companies use the money they raise.

Down payments must be made into escrow accounts that will be tied to specific projects and accessed under supervision, according to the rules prepared by Ministry of Trade and Commerce. The down payments shouldn’t exceed 20 percent of the total value, while a deposit for a purchase shouldn’t be more than 5 percent, according to the regulations published by the state run news agency said.

Construction of homes in the Arab world’s largest economy failed to keep pace with neighboring United Arab Emirates partly because developers have been unable to fund construction through advanced sales, known as off-plan. The system of payment helped Dubai fund construction of thousands of homes after foreigners were allowed to buy properties in certain locations in 2002. Dubai introduced regulations requiring escrow accounts only after the financial crisis caused thousands of buyers to default on purchases and developers who used money to fund other projects were unable to complete construction, causing numerous disputes.

Saudi Arabia is also mandating that developers guarantee structural and insulation works for buildings for at least 10 years from a property’s completion date. Electrical, mechanical and other works should have guarantee of a least one year.

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