JEDDAH, 15 August 2005 — Real estate developers complain that regulations on real estate investment in the Kingdom are contributing to the loss of financing in this sector. One result is that many locals have chosen to invest in giant projects in neighboring Dubai. Recent scandals have reduced investor confidence and interest in real estate projects here even though investors appreciate that the Ministry of Commerce has taken a step toward regulating and monitoring the sector. Despite the boom in construction and the flow of money in various investments especially the stock market, real estate investment projects are stalemated.
Recent scams such as the Venice Island project in Jeddah caused public outrage and prompted government ministries to take action against possible future scams. The Duraibi Group, the real estate developer of the Venice Island project, advertised and sold shares of the project after it received a permit from the Ministry of Commerce to establish the company but without getting a permit and license from the local municipality to implement the project or to advertise for it; the result was the loss of hundreds of millions of riyals by investors who bought shares in a non-existent project.
A government committee consisting of representatives from the Ministries of Interior, Commerce and Industry, and Information was formed and ordered Saudi Telecom Company two months ago not to provide toll-free numbers to any company or institution for the purpose of marketing real estate. The committee’s directions came after a number of embezzlement and fraud in different sectors, illegal contests and spurious investment offers. The order also stated that STC should not allow the publication and distribution of real estate investment advertisements through mobile SMS messages. Ibrahim Al-Harbi, director of internal commerce at the Ministry of Commerce, told Arab News that the committee was formed before the Venice Island scam. “The letter from the Ministry of Interior was sent to STC directing that no new 800 toll-free-numbers be given to companies marketing real estate investments. It took effect immediately,” he said. “The regulations now are that any advertisement allowed by the relevant ministry — for example commercial-related ads — are regulated by the Ministry of Commerce and health-related ads are regulated by the Ministry of Health,” said deputy director at the Ministry of Information Misfir Al-Misfir regarding media advertisements on real estate investments.
The Ministry of Commerce sent a circular to publishing, advertising and communication companies which emphasize compliance with the committee’s recommendations. The Chambers of Commerce were also informed of these recommendations. The Jeddah Chamber of Commerce and Industry (JCCI) forwarded a copy to Arab News of the circular it made for all its members regarding the letter it received from the Saudi Chamber Council on the recommendations.
Meanwhile, the Ministry of Commerce has suspended all permits for real estate investment projects until it reviews the regulations and announces new ones that will protect the rights of both developers investors. A higher committee has been formed to study the issue and will need a few more months to come up with recommendations, according to sources at the Ministry. Even though there was constant monitoring of new investment projects, the source admits that due to the Venice Island scam and others, the Ministry realized the irregularities, inconsistencies and undefined procedures present in real estate investments. Each day the Ministry receives proposals for new projects in addition to the many that have been approved but still face problems with the local authorities. They are all on hold at present until the committee makes its decisions.
Real estate developers and investors are asking for regulations that are not too complicated for establishing and advertising investment projects. At the same time, they expect the regulations coordinated between the different governmental and local administrations and to be more transparent and clear for developers as well as investors.
