JEDDAH, 27 February 2006 — Real estate developers are looking forward for a pick up in investment activity after the clearance of Duraibi case and the continued unpredictability of the stock market. On Wednesday, Saleh Al-Duraibi Group, the real estate developer of the huge Venice Island project in Jeddah, was cleared of the charges made against it. The company was granted approval to continue its projects which were suspended during the case.
Due to concerns over loopholes in the real estate investment market — exemplified by the Venice Island project — the Ministry of Commerce had suspended licensing all real estate investment projects in the Kingdom for eight months until it reviewed and introduced new regulations that would protect the rights of the developers and investors. Now that these new regulations are in place and with the positive conclusion of the Duraibi case, real estate developers and investors are eager for an upturn.
In April of last year, the Saudi Arabian Monetary Agency (SAMA) froze the accounts of the Venice Island real estate project and Al-Duraibi himself was put under house arrest. That was the first time such a step was taken to secure investor’s money from foul play and prevent possible fraud. In previous similar cases, shares of a project were sold to investors but while the project was being approved the money collected was used by the developer in other businesses inside or outside the country. Thus it was no longer available for the project and left it in limbo.
The Ministry of Commerce issued a permit for Venice Island to be offered as a real estate investment project. The Duraibi Group however advertised for investment in the project and sold shares in it for billions of riyals before it was approved by the Jeddah Municipality or the Higher Committee for the Development of Makkah Region.
After the suspension of licensing new real estate projects, a higher committee consisting of the relevant ministries was formed to study the issue and regulate the real estate investment process. The new laws for licensing real estate investments state that no real estate shares of any kind can be floated, used to collect money, advertised or approved until all regulations have been fulfilled. The regulations include getting the approval of the Ministry of Commerce and Industry to float the shares for public subscription. The ministry must verify that the land for which the shares are sold is in fact owned by the company which must have a valid deed; the company or individual offering the shares must have at least a 20 percent stake in the property.
Also, the land must have been officially approved for the investment by the relevant municipality. The law also states that the real estate units offered for flotation should have a valid license from the municipality plus a study by an official consulting office showing the building costs, duration and services.
After getting the ministry’s approval and before advertising for investment, the company or individual must apply to the Saudi Capital Market Authority (CMA) to establish an investment fund under the name of the shareholding project in accordance with CMA regulations. Before establishing the investment fund and advertising for shareholders, the owner of the land must register the land in court in accordance with Ministry of Justice and CMA regulations which guarantee that the land will not be tampered with during the period of investment.
Now that it has been cleared of any foul play, the Duraibi Group announced that it has a plan for relaunching its suspended projects, which includes Venice Island, by partnering with international financial institutes and construction companies to implement it. A statement by the group’s lawyer, Ahmed Al-Tuwaijri, assured that Venice Island will be a-model for real estate investment projects in Saudi Arabia and that the group is committed to the rights of all the 15,000 investors in the project in accordance to the contracts signed.
However, the Jeddah Municipality said that as of yet they have not received any official change in the status of the project.
Meanwhile, realtors are optimistic about a turnaround in the real estate investment market. “There was a decrease in activity during the past six months. One of the reasons is the loss of confidence after the Duraibi case, but the main cause is that most of the investors are putting their money in the stock market,” said Saed Al-Malki from Olaya Real Estate Company. “There are signs now that the real estate market is picking up due to the fluctuations in the stock market where many people lost lots of money and due to the new regulations that are protecting the rights of the developers and investors,” said Al-Malki.
