Saudi Arabia Opens Investment Doors in Mecca and Medina Real Estate
It has publicly declared that a major step has been taken to make it possible for non-Saudis to invest in publicly-traded firms owning real estate in Mecca and Medina. From January 27, 2025, foreigners will be permitted to purchase shares and convertible debt papers in firms owning private and public real estate in these holy cities, according to a declaration by the Saudi Capital Market Authority.
Investment Opportunity Amidst Restrictions
Even with the new investment opportunity, a long-standing ban on non-Muslims owning property in Mecca and Medina directly has not been revoked. These cities are of immense cultural and religious significance, and many investors are highly interested in seeking stable, high-yielding investment opportunities. Because these are major destinations for Muslim pilgrims who come for Hajj and Umrah, Mecca and Medina generate steady hotel, retail, and other forms of revenue servicing millions of visitors every year.
Saudi Arabia’s Economic Transformation and Dependence on Oil Revenue
The Saudi Arabia decision to open up its real estate markets in those hallowed cities is part and parcel of the larger steps being taken by the kingdom to diversify away from oil dependency. Nonetheless, without conclusive evidence of diversifying into global investment, revenue from oil continues to play a key role in financing the country’s economic transformation.
According to the International Monetary Fund, the national budget of Saudi Arabia would need to balance at around $96 per barrel of oil, nearly $20 more than the current level. That speaks to the extent to which the kingdom is reliant on the oil sector to prop up economic reforms.
Shift in Sovereign Wealth Fund Dynamics
In 2024, the Public Investment Fund of Saudi Arabia, which is central to its economic diversification strategy, saw spending fall sharply. Global SWF research showed that PIF’s spending fell by 37% to $19.9 billion in 2024 compared with $31.6 billion the previous year. The UAE’s Mubadala Fund surpassed PIF as the world’s most active sovereign wealth fund.
Foreign Interest in Saudi Bonds
Even though Saudi Arabia has only seen limited direct foreign investment in its domestic projects, international investors have taken a keen interest in Saudi debt. In 2024, the country’s $12 billion bond had attracted bids amounting to over $30 billion, and Saudi Arabia managed to sell $17 billion worth of international bonds. This positioned the kingdom in a good position, second only to Romania in the sales of bonds in the emerging markets with clear international confidence in Saudi financial instruments.
Road Ahead in the Investment Landscape for Saudi Arabia
Since the kingdom continues to look further in its desire to dig even deeper for more foreign investment and more diversified economies, opening the real estate of Mecca and Medina to foreign investors could be one of the next critical steps of an on-going overhaul of the economy. It will then be of tremendous interest to determine how the alterations will impact the stability and continuation of growth by Saudi Arabia while trying to redefine itself as the world’s next hub of investment.