Similar to the imposition of fees on undeveloped land, some opinions and proposals have been put forward calling for (regulating) the real estate rental market through intervention by the Ministry of Housing to regulate the relationship between landlords and tenants, with the aim of setting a specific cap on rent increases during certain time periods, and, according to their reasoning, this measure will have a more positive impact on the crisis of high housing costs—both for purchase and rent—than the imposition of fees on undeveloped land.
Decades ago, the government had issued similar decisions in line with the circumstances of that time; the Council of Ministers issued Decision No. 221, which stipulated that rents for properties leased before January 1, 1394 AH, would be increased by 20%, whereas rents for properties leased after that date would remain unchanged during the years 1401 AH and 1402 AH. Additionally, landlords and tenants were granted the freedom to agree on rents by mutual consent, effective from the beginning of the year 1403 AH.
In addition, a number of real estate professionals have proposed establishing a mechanism to increase lease values by no more than 5 percent of the rent, provided that such increases occur only once every two years, while others expressed reservations, pointing to the importance of preserving market freedom and voicing their concern that investors and developers might be deterred from the sector as a result of implementing such a proposal.
In this context, Legal Advisor Khalid bin Othman Al-Rukban, a member of the Saudi Regulations Association, stated that in order to safeguard public funds and protect them from any manipulation, the executive regulations of the State Real Estate Lease and Eviction Law stipulate that rent may be increased by no more than 5% of the initial rent if the extension is for one year, and no more than 10% of the initial rent if the extension is for more than one year, However, given the Kingdom’s economic boom and the attractiveness of its business environment—which have enabled it to rank eighth globally in attracting foreign investment and first in the Middle East—a group of property owners in various cities across the Kingdom have taken advantage of this boom.
For his part, Eng. Talal Abdullah Samarkandi, Chairman of the Engineering Offices Committee at the Jeddah Chamber of Commerce, opined that implementing such a proposal is feasible in all cities of the Kingdom, with the exception of the two holy cities of Makkah and Madinah, given theenormous scale.
Samarqandi explained that enforcing and reviewing existing laws in this area to ensure landlords do not impose excessive rent increases on tenants—without causing undue hardship or harm to the landlords themselves—is a sound and reasonable approach, noting that this also applies to reducing rent in the event that new circumstances warrant it.
For his part, businessman and real estate developer Ibrahim Abdullah Al-Subaie believed that such a proposal could have a number of negative consequences, chief among them contributing to investors’ reluctance to enter the sector, in addition to causing tenants of the property—whether a store or a residential unit—to cling to it and refuse to move out, which would result in a shortage of available properties and leave many renters unable to find housing. However, this does not negate the fact that there are positive aspects to such a proposal, particularly in curbing excessive rent increases.
Al-Subaie said that it is necessary and important for municipal authorities and agencies responsible for issuing building and related permits to shorten the time it takes to grant permits to developers and investors in order to ensure a balance between supply and demand, especially now that and many government and private entities have successfully reduced the time required for transactions, and as long as investors and developers are present, capital is available, land is accessible, and there are no obstacles, we will see an expansion in construction. Consequently, an increase in supply will restore balance to the market and curb the rise in real estate prices for both sales and purchases.
