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Some common mistakes when buying a property in Saudi Arabia

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Everything you need to know is included in our Saudi Arabia Property Pack

Buying property in Saudi Arabia presents a unique set of challenges and potential pitfalls, particularly for foreign investors unfamiliar with the local context.

The Kingdom's distinct legal frameworks, cultural practices, and administrative procedures necessitate careful navigation.

In this article, we will explore some of the most common mistakes and pitfalls that property buyers in Saudi Arabia may encounter, providing insights to help make informed decisions and avoid costly errors. If you need a complete overview of the risks and how to avoid them, please check the documents in our Saudi Arabia Property Pack.

Is it safe to buy a property in Saudi Arabia?

While the country is generally safe for property investments, the risk of scams and bureaucratic hurdles cannot be ignored (we will give some examples later in this article). Potential buyers need to maintain a high level of vigilance and skepticism, particularly when deals seem too good to be true.

The legal framework, though improving, still lacks the transparency and robustness found in many Western countries, which can complicate the buying process.

From what we have gathered from our local experts and community of customers, the buying process is notably less transparent compared to Western standards, necessitating the engagement of local experts and legal advisors. The country’s legal system can be sluggish and bureaucratic, potentially making property dispute resolutions lengthy and frustrating, especially for foreigners unfamiliar with the system.

Due diligence is paramount in Saudi Arabia, with the complexities of the local market and legal system requiring a thorough investigation before any property transaction. If you want to buy a property, you absolutely have to verify property titles, ensure there are no existing disputes, etc. (we give the full review of what needs to be checked in our Saudi Arabia Property Pack).

While the Saudi government has initiated commendable efforts to regulate the real estate market and attract foreign investment (notably, the Vision 2030 has contributed to a sense of stability and safety) in the property market, the impact of these initiatives can be inconsistent. As a buyer, you should not rely solely on government regulation for protection and should instead take proactive steps to secure their investments.

As a foreign investor, you might face a steep learning curve in the Saudi property market, contending with cultural nuances and legal intricacies. The potential for high returns is present, but so are significant risks and challenges.

Engaging in the Saudi Arabian real estate market is not for the faint-hearted, but with the right preparation and guidance, it can be a lucrative venture.

What are some common mistakes and pitfalls?

Buying a property that belongs to dozens of individuals

Saudi Arabia follows Islamic inheritance laws, which involve detailed and specific distribution of a deceased person’s assets among their heirs.

This can lead to a single property being divided among a large number of heirs, resulting in small, fragmented ownership stakes.

Over time, as these fragmented ownership stakes are passed down through generations, the ownership structure of a property can become extremely complex. There might be dozens, or even hundreds, of individuals who own a small portion of a property.

For a buyer interested in acquiring a property, consolidating these fragmented ownership stakes into a single, unified ownership can be a monumental challenge. It requires tracking down all the individual owners, many of whom might not even be aware that they own a part of the property, and negotiating a sale with each of them.

The legal process for consolidating ownership and transferring the property can be lengthy and complex, with numerous bureaucratic hurdles to overcome.

There is also a risk that one or more of the fractional owners might refuse to sell, potentially derailing the entire transaction.

The fragmentation of property ownership can lead to disputes among the various owners, further complicating the situation for a potential buyer.

Resolving these disputes, and ensuring clear and undisputed ownership before proceeding with a sale, is crucial.

Buying a house where prayer areas are not aligned with the Qibla

In Saudi Arabia and many other Islamic countries, Muslims prefer their homes, especially the prayer areas within their homes, to be facing Makkah (Mecca).

This is because, as you probably already know, Muslims around the world face the Kaaba in Makkah during their five daily prayers. The direction towards the Kaaba from any point in the world is known as the Qibla.

When buying a property in Saudi Arabia, you might not pay enough attention to checking whether the property, and more specifically the prayer areas inside the property, are properly aligned with the Qibla.

Failing to do so can lead to dissatisfaction later, especially for devout Muslim families for whom this is a significant aspect of their daily lives.

Additionally, not considering the Qibla direction might also affect the resale value of the property, as future potential buyers might consider this an important factor.

To avoid this mistake, you should:

- Verify the Qibla direction of the property, especially the prayer areas.

- Use tools such as Qibla compasses or mobile applications that provide accurate Qibla directions based on the property’s geographical location.

- Consult with a local religious authority or mosque if needed, to ensure accuracy.

Signing an Ijara contract you don’t understand

Ijara, which is similar to leasing, is a common financing method in Saudi Arabia used for acquiring property.

In an Ijara contract, the financing institution buys the property and leases it to the buyer, with the lease payments including both the cost of the property and a profit margin for the lender. At the end of the lease term, ownership of the property is transferred to you.

One potential mistake that you might make is not fully understanding the terms of the Ijara contract, including the payment structure, the distribution of maintenance responsibilities, and the conditions under which the property ownership is transferred.

In some cases, you might assume that the terms of an Ijara contract are similar to those of a conventional mortgage, leading to misunderstandings and potential disputes down the line.

For example, you might not realize that they are responsible for maintaining the property during the lease term, or they might not be aware of the specific conditions that need to be met for the property ownership to be transferred.

Buying a land designated to support sustainable resource management

Hima is a traditional system of land and resource management rooted in Islamic law, which designates certain areas for specific uses, such as grazing, agriculture, or conservation.

Some lands in Saudi Arabia are classified as Hima, and these areas have restrictions on their use and development to preserve local ecosystems and support sustainable resource management.

When purchasing property in Saudi Arabia, especially in rural or undeveloped areas, you may overlook investigating whether the land is designated as Hima.

Acquiring property within a Hima zone without being aware of the associated restrictions can lead to legal complications.

For example, there might be legal restrictions on developing or altering the property, and violating these restrictions could result in fines, legal action, or the nullification of the property purchase.

Also, you might find that they are unable to use the property as they intended, which could significantly affect its value and utility.

Finally, you might be required to participate in conservation efforts or adhere to specific land management practices, which could entail additional responsibilities and costs.

To prevent problems:

- Research the property extensively, including its zoning and land use.

- Get legal advice on restrictions or duties linked to Hima-designated land.

Not putting your name on the title deed

Another lesser-known mistake that can be specific to property buying in Saudi Arabia is not being aware of or misunderstanding the "tanazul" system.

Tanazul, also known as relinquishment, is a system in Saudi Arabia where a foreign buyer can purchase a property, but the title deed remains under a Saudi national’s name.

This is a workaround for the restrictions on foreign property ownership in certain areas or property types.

Some foreign buyers might opt for this system to acquire property, but it comes with significant risks, as reported by our community of customers who bought the Saudi Arabia pack.

Since the property is technically under the Saudi national’s name, the foreign buyer might have limited legal recourse if any disputes arise. Furthermore, any transactions, such as selling the property or taking out a mortgage, require the consent of the Saudi national on the title deed.

Foreign buyers might not fully understand these risks or might be misled about the security of their investment when engaging in tanazul arrangements.

Not anticipating the developments linked to Vision 2030

You probably know it already,Saudi Arabia is undergoing rapid urbanization and development, with numerous mega-projects and urban developments underway as part of the Vision 2030 initiative.

While these developments can increase the value of properties in the affected areas, they can also have negative impacts on certain properties.

In some cases, properties might be subject to expropriation if they are located in an area designated for a future development project. Property owners might be compensated, but the process can be complex, and the compensation might not always reflect the market value of the property.

Development projects can lead to changes in road networks, public transportation, and infrastructure, affecting the accessibility of properties. This could potentially make a property more desirable, but it could also lead to issues such as increased traffic, noise, and disruption during the construction phase.

Large-scale development projects can significantly change the character of a neighborhood, impacting the quality of life for residents. This could be a positive change, but it could also lead to issues such as overcrowding, loss of green spaces, and changes in community dynamics.

To avoid making a mistake in this regard, you should thoroughly research future development plans in the area where they are considering buying property. This includes checking the official plans from local authorities, seeking information from reliable real estate experts, and considering the potential long-term impacts of these developments on the property.

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Everything you need to know is included in our Saudi Arabia Property Pack

Not verifying the deed properly

One lesser-known mistake that some people make when buying property in the country is not thoroughly investigating the property’s “Tabu” or title deed, especially in terms of its zoning regulations and land use permissions.

In Saudi Arabia, the zoning regulations can be quite complex and specific, and they can vary significantly depending on the location of the property.

Some buyers, particularly those from outside of KSA, may not be aware of how these regulations can impact their ability to use the property as they intend.

For example, a piece of land that seems perfect for a commercial development may actually be zoned for residential use only, and changing the zoning classification can be a lengthy and uncertain process.

Additionally, there may be restrictions on the height of buildings in certain areas, which could impact plans for construction.

Then, you have to make sure that the property’s title deed is clear and free from any disputes or encumbrances. We have detailed this point in our Saudi Arabia Property Pack.

In some cases, there have been reports of buyers purchasing property, only to later discover that there are legal disputes over the ownership of the land, which can result in lengthy and costly legal battles.

To avoid these issues, it’s advisable to work with a reputable local real estate agent and lawyer who are familiar with the Saudi Arabian property market and can help navigate the complexities of the local zoning regulations and ensure that the title deed is clear.

Not being familiar with the Hijri calendar

This issue might seem minor, but it has led to complications for some property buyers, according to our local experts on the ground.

Saudi Arabia primarily uses the Islamic Hijri (Hejri) calendar for official documents, contracts, and legal matters.

The Hijri calendar is a lunar calendar consisting of 12 months in a year of 354 or 355 days. It is used alongside the Gregorian calendar, but for legal and religious matters, the Hijri calendar takes precedence.

When buying property and dealing with payment schedules, contract dates, and legal obligations, the use of the Hijri calendar can lead to misunderstandings and miscalculations if one is not familiar with it.

A month in the Hijri calendar is 1 or 2 days shorter than a month in the Gregorian calendar, and this can accumulate to a significant difference over longer periods.

Any miscalculations or misunderstandings related to the calendar can lead to missed payments, breached contracts, and potential legal issues.

Then you have to know which calendar is being used in all documents and to convert and calculate dates accurately, especially for payment schedules and contract milestones.

Overlooking the undocumented rights of way

In some areas, particularly in older neighborhoods or in regions with a strong tribal presence, there may be informal or undocumented rights of way that grant access across a property to certain individuals or groups.

These rights of way may not be officially recorded, and they might be based on longstanding traditions or agreements.

This issue has been reported a couple of times to us when we were looking for feedback while producing the Saudi Arabia Pack.

If a foreign buyer purchases a property without being aware of these informal access rights, it could lead to disputes with locals who have been accustomed to accessing the land for years, if not generations.

Resolving these disputes can be complicated, especially if the rights of way are not formally documented.

Also, undocumented rights of way can impact the value of a property and restrict how the owner can use or develop the land. Buyers might find themselves unable to make certain modifications or use the property as they intended because of these access rights.

Conducting thorough due diligence is crucial to uncover any potential undocumented rights of way. This might involve engaging with local communities, speaking to neighbors, and consulting with local legal experts who are familiar with the area and its history.

Understanding the social and cultural dynamics of the area can also provide valuable insights and help prevent potential conflicts.