Saudi Arabia has introduced a new framework for expropriation. The new Law on Expropriation for Public Interest and Temporary Possession of Real Estate, issued by Royal Decree No. (M/56) dated 12/3/1447H (Sept. 4, 2025), and approved by Council of Ministers Resolution No. (177) dated 3/3/1447H (Aug. 26, 2025), creates a detailed legal structure for compulsory acquisition and temporary possession of real estate for public interest purposes. This law replaces the 2003 framework and is generally regarded as a significant change in the regulation of expropriation.
The Royal Decree (M/56) includes transitional measures, such as a 120-day period before the law becomes effective. This interval is intended to allow for the finalization of implementing regulations and preparation of administrative systems. This law also addresses continuity by confirming that existing cases approved under the previous framework will remain in place in order to avoid disruption to ongoing projects. Additionally, it introduces changes to utilities billing: within one year, the Ministries of Environment, Water & Agriculture, and Energy must shift electricity and water bills from property owners to actual occupants, a structural reform intended to align costs with actual use. Until this reform is implemented, the Diriyah billing mechanism, Royal Decree No. (M/74), applies to expropriated properties.
Core Features of the New Framework
- Public Interest as a Threshold: The law defines what constitutes a public interest project, covering areas such as infrastructure, utilities, health, education, heritage protection, national security, and projects connected to the Two Holy Mosques. The law requires authorities to demonstrate that state-owned land cannot meet public interest requirements before converting it to private property.
- Funding Discipline: Projects generally may not proceed without approved funding or substitute land. This measure is designed to prevent unfunded commitments and protect owners from uncertainty.
- Strict Timelines: The procedure is structured into phases commonly referred to as “60–60–90–90”: review of applications, publication and notification, valuation, and compensation with title transfer. Eviction is barred until compensation is paid. If payment is delayed more than three years, the owner may request a revaluation, which cannot result in a lower compensation amount.
- Independent Valuation and Compensation: Valuations are conducted by three accredited valuers overseen by the Saudi Public Governance Authority (SPGA). Compensation is set at fair market value plus a 20% premium and direct damages. This differs from some jurisdictions where only market value is provided.
- Temporary Possession: Authorities may take temporary possession, paying rental value plus 20% and damages. This is capped at three years, extendable once with owner consent and SPGA approval. If the need persists, full expropriation is required under the law.
- Other Measures: The law allows for non-cash compensation (land or project shares); tax and fee relief, including Real Estate Transaction Tax exemptions for reinvestment within five years; explicit rights for tenants, mortgagees, and usufruct holders; conflict-of-interest prohibitions with penalties; and reacquisition rights if projects are cancelled.
- Dispute Risk: The law seeks to reduce ambiguity, but the compensation structure may lead to increased valuation disputes.
- Investor Considerations: The law introduces greater predictability, though developers may need to factor potentially higher acquisition costs into project planning.
- Utilities Reform: The shift to occupant-based billing represents a structural change, with implementation potentially requiring significant coordination among government entities.
- Administrative Capacity: The SPGA has been assigned extensive responsibilities. Its ability to manage applications, valuations, and enforcement on a nationwide scale may be a key factor in the law’s effectiveness.
- Fiscal Impact: The 20% premium may raise the cost of large infrastructure projects. As a consequence, investor confidence may be reduced.
Considerations
While the new law adds clarity to the expropriation process, it also raises several points for further observation:
Conclusion
The new law introduces a revised framework for compulsory acquisition and temporary possession of real estate in Saudi Arabia. Key elements include defined public interest thresholds, specified timelines, enhanced compensation mechanisms, and centralized oversight. The effectiveness of the new framework may depend on the development of implementing regulations, the administrative capacity of the SPGA, and the transition to the new utilities billing system.