For Sale: Saudi Opens Up to FDI Amid Regional Tensions
Riyadh is backtracking on years of excessive government spending in anticipation of renewed volatility.
Saudi Arabia has introduced a new law permitting foreigners to own property in designated zones, starting in 2026. This reform is part of broader efforts to attract foreign direct investment (FDI) following a period of stagnant inflows to the country. The decision comes after years of what has been called execessive government spending and a weakened economy, further aggravated by Iran’s recent attacks on Qatar, which triggered a swift realignment of alliances in the Gulf. Saudi’s new law mirrors Oman’s recent introduction of a personal income tax, a Gulf first, brought in amid expectations of continued geopolitical instability.
FDI in Saudi Arabia: A Persistent Challenge
Oil accounts for approximately 55% of Saudi Arabia’s fiscal revenues, yet the Kingdom has struggled to sustain consistent FDI despite Vision 2030’s ambition to diversify into sectors such as tourism, technology, and real estate. Non-oil GDP grew by 4.2% in 2024, but FDI inflows fell 19% year-on-year to $20.7 billion, marking the lowest level since 2020, according to an annual government report. This decline, driven by global economic uncertainties and geopolitical tensions, underscores the challenges facing Saudi Arabia’s economic diversification efforts. The new property law seeks to increase investor confidence by offering legal clarity and access to a real estate market poised to capitalise on rising housing demand and projected tourism revenues of $25 billion annually by 2025.
Saudi Arabia has historically restricted property ownership by non-citizens, with exceptions for Gulf Cooperation Council (GCC) nationals and select commercial investments. This protectionist stance, particularly around the Holy Cities of Mecca and Medina, reflected cultural and economic priorities. The 2025 reform, approved by the Saudi Cabinet, introduces a framework for foreign ownership in designated zones, aligning with recent regulatory updates like the Investment Law and Commercial Registration Law. This move parallels Oman’s introduction of a personal income tax aimed at fiscal resilience amid geopolitical uncertainty. By liberalising property ownership, Riyadh aims to stimulate capital inflows, with early market responses showing stock gains for property developers.
Rapprochement as Resilience?
Iran’s recent strikes on Qatar have reshaped Gulf alliances, underscoring the strategic importance of Saudi Arabia’s economic reforms as preemptive measures to bolster resilience against regional volatility. In anticipation of potential disruptions, the Kingdom has been stockpiling financial reserves and diversifying revenue streams to mitigate risks from oil market fluctuations. The 2023 China-brokered Saudi-Iran rapprochement has reduced direct threats to Saudi assets, facilitating OPEC+ coordination on oil production and stabilising bilateral relations. Further deepening of ties with Iran could enhance regional stability, potentially unlocking joint economic initiatives and reducing the risk of proxy conflicts, though it may strain Saudi alignment with Western partners. However, the fragile US-Qatar-mediated ceasefire with Iran risks collapse, with potential oil price spikes to $120–$130 per barrel offering short-term fiscal gains for Saudi Arabia but threatening investor confidence and long-term economic diversification goals.
The property law reform is a strategic effort to insulate Saudi Arabia’s economy from regional volatility while advancing Vision 2030’s non-oil growth targets . By opening real estate to foreign investors, the Kingdom aims to attract significant FDI, leveraging its growing tourism and housing sectors. However, success depends on navigating geopolitical risks, including potential Iranian escalation. Saudi’s cautious diplomacy, balancing relations with Iran and the US, will be critical to sustaining investor confidence.
