In a regulatory move aimed at promoting the flow of real estate assets and protecting the banking sector from the risks of holding non-operating assets, the Saudi Central Bank (SAMA) has approved strict measures requiring banks to liquidate real estate that has been transferred to their ownership as a result of settling the debts of delinquent customers
Regulatory Rule: Maximum of 3 years
Based on the Banking Supervision System, the ”Central Bank” clarified that real estate transferred to banks in satisfaction of debts (and not designated for their headquarters or employee housing) must not remain in the banks“ portfolios for more than 3 years. This provision ensures that banks do not become ”real estate warehouses" and encourages liquidity and assets to return to the economic cycle.
Strict governance… no individual exceptions
Extending the retention of real estate is no longer subject to discretion or individual requests, as the new circular requires banks to:
Comprehensive annual plans: Submit a liquidation plan within 30 days of the end of each calendar year.
Board of Directors Approval: These plans must undergo an internal review and be approved by the banks" boards of directors, thereby increasing accountability and transparency.
Standardized Form: Adherence to specific forms covering properties nearing the end of their term or those requiring extension within the annual plan only.
What does this mean for the real estate market?
Experts believe this trend sends positive signals to the real estate market, including:
Increased real estate supply: Encouraging banks to sell these assets will supply the market with a variety of properties (commercial, residential, land) that may present investment opportunities for developers.
Stable property valuations: Preventing the accumulation of assets at banks helps ensure that sales take place in accordance with actual market mechanisms, thereby supporting the stability of property valuations.
Focus on Banking Operations: The decision ensures that banks focus on their core activities (financing and banking services) rather than being preoccupied with managing and developing real estate assets that fall outside their area of expertise.
