Capital takes various forms in business activities, including cash capital—which is the cash on hand that a person possesses— real estate capital, which consists of a person’s real estate assets, and even what is known as knowledge capital, which is protected by intellectual property laws.

Innovative Solutions Through Capital Integration

The Kingdom is a massive economic market with global competitive potential, containing all the forms of capital mentioned above, and if we take into account the ambitious goal of Saudi Vision 2030 to transform the Saudi national economy into a diversified one that does not rely primarily on oil exports, then interest in investing other forms of capital— whether monetary, real estate, or knowledge-based. Innovative solutions must be found to integrate these forms of capital in a way that yields personal investment returns for investors while simultaneously benefiting the national economy as a whole.

Build-Operate-Transfer (B.O.T.) Contract

This article will address the investment of real estate capital and cash capital by introducing the concept of Build-Operate-Transfer (B.O.T.) Contract; This type of contract is typically used by governments in their public-private partnership (PPP) agreements, as it is widely employed in such projects, such as the construction of airports and large-scale facilities, but in reality, there is no legal or investment barrier to using these contracts in the field of real estate investment at the individual level.

The concept of a Build-Operate-Transfer (B.O.T.) contract is based on the existence of a landowner who owns real property and contributes capital in kind, who does not own Liquidity, represented by cash capital, which enables an individual to establish a project on their own land, thereby eliminating or reducing their investment opportunities in land, while at the same time there are investors with sufficient liquidity who wish to deploy these funds in a way that yields good returns. This is where the role of integration in the deployment and pooling of capital comes into play, so as to achieve investment returns that benefit both parties.

Recovery of Capital and Profits

Now that we understand the components of a Build-Operate-Transfer (B.O.T.) contract—namely, the real estate owned by a real estate investor and the capital provided by another investor— it is necessary to clarify the investment framework for this type of contract. The basis of the contractual agreement in a B.O.T. contract on the real estate investor granting their land to the investor with liquidity to invest in it for a specific period binding on both parties—such as ten years, twenty years, or other terms determined by the feasibility studies prepared for such projects. The investor with liquidity then develops the project—such as constructing residential complexes, international hotels, factories, or other real estate projects—and subsequently reaps the financial returns from this project, The agreed-upon term includes a period sufficient to recover the cash capital represented by the project’s cost, as well as a period sufficient to realize the expected profits from the project.

Contracts Suitable for Vacant Land

Upon expiration of the term, the land and the project built on it are returned to the original landowner—the real estate investor—who has effectively invested his land through the rent paid by the project owner if a rental fee was agreed upon, which is not a requirement, in addition to the project itself built on his land. This is the primary objective of granting investors with liquidity the opportunity to invest their funds in the land, allowing them to benefit by investing and profitably growing their capital.

These contracts represent an opportunity for domestic investors and are also typically attractive to foreign capital, leading to the injection of foreign funds and liquidity into the Saudi market, On the one hand, B.O.T. contracts are a sound contractual tool for eliminating underutilized land and stimulating cash flow by incorporating land costs into project budgets and generating profits and returns from them.