While it has a large growing population of 29 million, most people in Saudi Arabia do not own their own homes, and demand outstrips supply. Until recently, mortgages didn’t exist and people who bought property paid 100% cash up front. This is why only 30% of the Saudi population owns their own houses as opposed to the international average of 70%. Now, recent mortgage laws have made finance more readily available, but these are heavily governed by strict Islamic Sharia law.

Most banks do not offer finance to expats for buying property in Saudi Arabia. The holy cities of Mecca and Medina are strictly off-limits to foreigners unless the land is inherited. Non-Saudi Muslims can obtain leases of up to two years in these cities, renewable for the same period. 

Townhouses and villas are becoming increasingly popular designs as they offer large living spaces at a more reasonable cost. New construction sees an increase in communal living space. 

How to buy a house in Saudi Arabia: can foreigners buy real estate in Saudi Arabia?

Expats must have a letter of permission from the Ministry of Housing before purchasing any property. This may take up to a year to process. 
Sellers are used to cash buyers, so even if you pay a deposit on a house, if the seller finds a cash buyer, they may sell the house from under you. Do not sign a sales contract or put a down payment on a house without securing finance approval first and seeking legal advice about your ability to legally purchase property in Saudi Arabia.

The price is negotiated between buyer and seller and facilitators, including land brokers and lawyers. Once a private purchase agreement has been negotiated, an investor must go to the local Sharia Court to ensure that the land in question is really owned by the seller, and must record transfer of title. The Court will stamp the title document to indicate the legal transfer of ownership.

Finance from a bank, when buying property in Saudi Arabia, must be compliant with Islamic law. The word ‘interest’ will not appear on a contract, instead, it is referred to as ‘profit.’ You will not be charged unreasonable late payment fees, and the banks will not foreclose on a property unless there is no other choice.

Finance options

Salary Transfer
Many banks require the mortgage repayments to be taken out each month as a direct deposit. As salaries are deposited into this account, the automatic debit is known as a ‘salary transfer.’ This is the most common loan for expats.

Non-Salary Transfer
Mostly reserved for Saudi Arabian citizens, ‘Non-salary Transfers’ are when a set amount is to be paid on time, and you make the payment, as opposed to it being taken out automatically.

Finance

‘Ijarah’ finance is the most common way for foreigners to purchase real estate. ‘Under ijarah financing, the rate is variable, and the house technically belongs to the bank, and they rent it to you. Once you have made all the payments on the house, the bank ‘gifts’ it to you.

The alternative is ‘murabaha,’ which is direct ownership at a fixed interest rate. This is mostly available to Saudi citizens.

Saudi finance companies and banks place a heavy emphasis on your employer’s stability, regardless of your income. If your employer is small or hasn’t been around for a long time, you will most likely not be approved for home financing. If you want to buy a house in Saudi Arabia, your employer needs to be large and stable. Before signing a contract, see if you are allowed to pay the debt off early, and check what the penalty is for doing so.

Banks will ask where the funds for the deposit came from. If you borrowed the money for the deposit, you will most likely not be approved for a mortgage.

The Ministry of Housing will only provide one letter of approval per expat worker in Saudi Arabia, so expats can only finance the primary residence. Investment property finance is reserved for citizens of Saudi Arabia.

Fees

Although they may vary between lenders, Amlak Finance lists their fees and charges. (Nov 2016)

Application Fees

• Residents/Non Residents/Refinance (New Customers)- US$1,360.00
• Top Up (Existing Customers)- US$815.00

Processing Fees

• 1% of Finance Amount

After Sale Services

• Offer Letter Amendment Fees- US$1,360.00
• Extension Fee (Pre-Approval/Offer Letter)- US$408.00
• Snag/Inspection Charges- US$680.00
• Property Handover Charges- US$272.00
• Copy of Statement/Documents from File- US$27.00
• Liability Letter Issuance- US$27.00
• Property Management Service- US$1,360.00

Miscellaneous Charges

• Processing Fee- US$136.00
• Property Registration Service, Land Registration Charges Facility, Service & Maintenance Charges Facility, Miscellaneous Payments on Customer's Behalf- US$1,360.00
• Additional Rental Restructuring, Remedial/Restructuring/Consolidation, “Sulh” (amicable) Settlement Late Payment Fee (Payable to Charity)- 2.5 % of Installment Amount
• Cheque/SI/DDS Return Charges- US$68.00
• Release of Police Case- US$136.00

Indication of property cost

Modern villas and apartments under construction in Saudi Arabia, and are closely built together, and most have little privacy.  Here is a rough guide to housing costs:
Single family home (3 bedrooms) — US$300,000
Small Apartment (2 bedrooms) — US$150,000
Luxury Apartment (3 bedrooms) — US$300,000+
Luxury Home (4-5 bedrooms) — US$800,000+

Scams

According to the Saudi Gazette in May 2016, there are a few things to be aware of:

• Stalled projects, often dur to financial insolvency, have made many investors lose money and the settlements are delayed causing the funds to be tied up. Owners and investors could not develop or sell their properties as a result of the protracted legal disputes.
• Fake project developers that do not have proper addresses with no information about the businesses behind these ventures.

Banks

According to comparison website Souqalmal, these banks would be willing to offer mortgages to expats:

SAAB

Alinma Bank Real Estate Financing

Saudi Hollandi Bank Home Finance
 

Article sources:

Banker in the Sun
 

See also:

Areas to live in Saudi Arabia

Glossary of Saudi Arabian terminology

Renting property in Saudi Arabia