A real estate contribution is an investment technique that enables a group of stakeholders to collectively own shares in a property to develop and ultimately sell for profit.

The Saudi Cabinet approved a Real Estate Contributions Law on July 11 to regulate real estate contribution activities, enhance transparency and disclosure, and safeguard the rights of all parties involved.

The legislation seeks to provide resilient financing channels for investors in development projects and increase confidence in the real estate sector by regulating the procedures related to issuing, managing and liquidating investments.

It also aims to increase the supply of real estate to keep pace with increasing demand, specifically for residential property.

The Real Estate General Authority is set to issue the executive regulations for the new legislation in coordination with the Capital Market Authority within 120 days from the date of approving it.

It is believed that the Real Estate Contributions Law will support the comprehensive strategy for the industry as it is built on strict governance and protecting investors’ rights.

The REGA will approve and supervise the real estate contributions, while the CMA will approve the offering, the marketing and the collection of contributions from the shareholders.

It is believed that the Real Estate Contributions Law will support the comprehensive strategy for the industry as it is built on strict governance and protecting investors’ rights.

It is worth noting that real estate contributions have existed in the Kingdom since 1941 and the development of urban areas. Developers found real estate contributions an easy way to raise funds to finance their projects.

The investments were previously executed in an unorganized and primitive way without strict controls to protect investors’ rights. This caused many investments to fail and investors to lose their money.

A total of 656 real estate contributions investments have failed in the past, with SR4 billion ($1.07 billion) being lost in 2015.

I believe the Real Estate Contributions Law will protect investors’ rights as it will enhance transparency and disclosure through strong governance. This will support real estate contributions to grow and flourish, especially as breaches of the law could result in a prison sentence and fine of up to SR10 million.

• Talat Zaki Hafiz is an economist and financial analyst. Twitter: @TalatHafiz