Saudi Arabia is to allow foreigners real estateinvestors to own property for the first time in one of four cities underconstruction in the country.

KingAbdullah Economic City will be the first freehold city in Saudi Arabia and isbeing built by government controlled Emaar Economic City at a cost of $27billion with an expected completion date of 2025. It will cover an area thesize of Brussels.

 

‘A lot ofpeople want to invest in the Saudi market and see it as a frontier for realestate investment because of the population explosion here,’ said FahdAl-Rasheed, chief executive officer of Emaar Economic City, a companycontrolled by the Saudi Arabian government and Dubai’s biggest propertydeveloper.

 

The city,known as KAEC, is near Jeddah and designed to house two million people andgenerate a million jobs. The other three cities under construction areKnowledge Economic City in Medina, Jazan Economic City in Jazan and PrinceAbdul Aziz bin Mousaed Economic city in Hail. Two more economic cities areplanned in Tabuk and the Eastern Province.

 

KAEC ispart of a $400 billion plan announced by the government in 2008 to invest inSaudi Arabia’s infrastructure and make the country less dependent on the oilindustry as well as meet its population growth. Saudi Arabia’s population hasmore than doubled since 1986 to about 25.5 million.

 

<a href="http://www.gdioverseas.com">Foreign investors</a>, individuals andcompanies, will be able to buy under the new Economic Cities Act issued almosttwo months. Regulations putting the act into effect are expected soon and willcover issues such as foreclosures, repossessions and the creation of a landregistry.

 

KAEC willhave the Red Sea’s biggest port and an industrial district where French oilcompany Total SA and US chocolate maker Mars will operate. The city will bespread over 65 square miles. ‘Over the next five years we expect to spend morethan $4 billion developing infrastructure and assets in the city. This won’t bedone by us alone, but with other partners,’ Al-Rasheed said.

 

About 40families already live in KAEC and Emaar Economic City plans to hand over 470houses to buyers this year in the project’s first phase. The second stage,including homes for 40,000, is scheduled for completion in 2014.

 

But theproject hasn’t escaped the economic crisis. A shortage of houses has notprevented about 15% of homebuyers defaulting on purchases and the company wasforced to delay construction of 16 towers as customers struggled to makepayments.

 

Al Rasheedsaid he’s now seeing an increase in sales, mostly among middle income buyers,prompting the company to start its 22,000 unit Hawadi housing project a yearearlier than planned. ‘We are going to hit our stride with Hawadi. It’saffordable and within the typical mortgage range. Anybody can invest insomething like this,’ he added.

 

The 16delayed tower development will be started again in six months after the projectis redesigned and retendered to take advantage of declining construction costs,Al Rasheed said.

 

Dubai Property

 

 

A row has broken out between lawyers and officials over whether or not the Dubai Land Department has the power to cancel building contracts and seize properties from investors who are behind with their payments.

The DLD has sent out letters to investors in building projects, including Mazaya Business Avenue and Jumeirah Business Centre Five, both in Jumeirah Lake Towers, saying that if they fail to make outstanding payments within a fortnight their properties will be taken and auctioned off. The letters also state that 40% of any investment so far will be confiscated.
 
But lawyers are questioning whether the DLD has the right to do so. ‘My argument and I believe the entire legal community feels the same, is that because the DLD is not a judicial body, these judgements are not enforceable. Only a court can enforce them,’ said Ludmila Yamalova, a partner at Al Sayyah Advocates and Legal Consultants.
 
Jerry Parks, partner and head of real estate at Taylor Wessing Middle East also doubts their legality. ‘The DLD has no rights to cancel a sale and purchase agreement as opposed to a project. It is not a right of the DLD to repossess a property. It is a right on the part of the developer if there is a default on the part of the purchaser and the proper legal steps have been taken to terminate the sale and purchase agreement,’ he explained.
 
But Mohammed Sultan Thani, assistant general director of the DLD insisted that it does have the right to cancel contracts after ample time has been given to investors to correct their position on defaults before cancellation notices are served.
 
‘Notices have been served to investors who have failed to comply with the legal provisions. Developers had given them ample time to pay up their dues. If the investor remains adamant and does not pay, then there is no option for the developer,’ he said.
 
According to the department, a 30 day notice is sent to an investor to pay up what is owned and if no response is received within that period another 15 day notice is served. Following this period, the department cancels the contract. ‘We need to cancel the contract so that developers can sell the properties again. There is a need to remove the past owner’s name to allow resale of property,’ Thani explained.
 
Under a decree, a developer does not need to sell at public auction if he completes more than 80% of the project and may elect to terminate the contract and retain up to 40% of the purchase price but the investor can challenge the cancellation notice, he added.
 
But Yamalova said that the notices refer to a decree, number 6 of 2010, that has yet to be made official. ‘The Dubai Land Department is over stepping its boundaries here,’ Yamalova claimed.