In a regulatory move aimed at enhancing the flow of real estate assets and protecting the banking sector from the risk of holding non-operational assets, the Saudi Central Bank SCB (SAMA) has approved strict procedures requiring banks to liquidate properties that have come into their ownership as a result of settling the debts of defaulted customers

Real Estate Liquidation

Regulatory Rule: Maximum 3 years

<Based on the Banking Supervision Law, the Central Bank has clarified that real estate that is transferred to banks in fulfillment of debts (not for their headquarters or staff housing) should not remain in banks” portfolios for more than 3 years. This provision ensures that banks do not become ”real estate warehouses“ and pushes liquidity and assets back into the economic cycle.

Strict governance... No individual exceptions

The new circular requires banks to:

Extension of real estate retention is no longer subject to discretion or individual requests, as the new circular obligates banks to:

Comprehensive Annual Plans: Submit a liquidation plan within 30 days of the end of each calendar year.

Board Approval: These plans should be subject to internal review and approved by the banks” boards of directors, raising the level of accountability and transparency.

Uniform template: Adhere to specific templates that include only those properties that are nearing the end of their term or those to be extended within the annual plan.

What does this mean for the real estate market?

Experts believe that this trend carries positive messages for the real estate market, including:

Increased real estate supply: Incentivizing banks to sell these assets provides the market with diverse properties (commercial, residential, land) that may be investment opportunities for developers.

Stabilization of valuations: Preventing the accumulation of assets at banks contributes to making sales according to real market mechanisms, which supports the stability of real estate valuations.

Preventing the accumulation of assets at banks contributes to making sales according to real market mechanisms, which supports the stability of real estate valuation.

Focus on banking operations: The decision ensures that banks focus on their core activity (finance and banking services) instead of being preoccupied with the management and development of real estate assets that are outside their competence.