Musahama is a form of real estate collective investment scheme that was historically implemented informally and subsequently banned in Saudi Arabia just before the advent of the Real Estate Investment Fund Regulations. However, earlier this year, the Real Estate General Authority (REGA) issued the new Musahama Law and its implementing regulations, legalising and regulating Musahama. Below is a summary on key attributes for Musahama.

1. The term Musahama has been loosely translated into English as “Real Estate Contributions Certificates.”
2. Article 17 of the Musahama Law provides that a Musahama acquires legal personality upon REGA’s issuance of a licence and is subject to the provisions of the law and regulations.
3. The register of certificate holders is kept by the CMA-authorised person (or a third-party registrar they may appoint) through which the Musahama is offered.
4. A Musahama may borrow (i.e. obtain debt financing) but cannot lend to others.
5. All funds raised by a Musahama must be deposited into an escrow account, as should the proceeds from the sale of or income earned from its assets.
6. Chapter 4 of the Musahama Law provides that each Musahama will have an assembly of certificate holders who can convene meetings and vote on various issues.
7. On this basis, there is no requirement for the creation of an SPV to hold the assets of the Musahama, nor is a Musahama SPV required, as a Musahama in and of itself is considered a legal entity with its own legal personality and the characteristics described above.
8. In the past, Musahama has typically been used to hold freehold ownership of land, not a lease, as a lease with rental payment obligations is typically considered a liability and not an asset under IFRS.
9. If debt financing is raised, it will be interesting to see if banks are comfortable lending directly to the Musahama legal entity, given its legal status, and also given the fact that its assets can be mortgaged to guarantee the debt.
10. Note part 3 (Offering Real Estate Contributions Certificates) of the Capital Market Authority’s (“CMA”) Instructions on the offering of Musahama.
11. It is prohibited for any person to advertise, announce, offer, or collect funds for real estate contribution certificates in the Kingdom unless the following conditions are satisfied:

• The offer must be made through a licensed capital market institution authorised to carry out arranging activities.
• The offer must be made through a private placement or a public offering.
• The funds collected from the offering of real estate contribution certificates must not exceed 100 million Saudi Riyals.

1. Despite the implementing regulations of the Musahama Law being issued by REGA, providing for the use of Musahama for medium (SAR 100m to SAR 300m) and large (SAR 300m and above) real estate projects, the CMA has indicated that it will only approve the use of Musahama to raise capital of not more than SAR 100 million, as per their Instructions on the Offering of Musahama.
2. For example, a developer could have a project worth SAR 300m and structure it as a Musahama, but the developer cannot raise more than SAR 100m in equity for that project. In this example, the developer would have to contribute the remaining SAR 200m itself.
3. It is very important to note that Musahama needs to be both (i) licensed by REGA and (ii) approved by the CMA, as both have jurisdiction over the subject matter.
4. We expect this to be an effective and efficient tool for smaller real estate projects where developers need to raise less than SAR 100m.