Alternative funding pathways for real estate developments in KSA

By Mohamad Yamout

Saudi Arabia’s real estate sector is experiencing unprecedented growth, driven by Vision 2030, numerous giga-projects and the creation of new cities and districts. In the past, developers benefited from early-stage funding provided by government entities and public capital channels, which drove the sector’s initial momentum. But as the market matures, sovereign funds and government-backed development banks are expected to redirect resources toward new entrants and other strategic sectors. Established developers therefore face a major challenge: They must secure alternative, sustainable sources of financing in order to expand their portfolios and compete both regionally and globally. We examine why diversification is inevitable, outline the global pathways available and show how Roland Berger can support developers in aligning business plans with the most suitable financing models.

Why now?

Early momentum in Saudi Arabia’s real estate sector was underpinned by government-backed financing. But this support won’t last forever. As sovereign funds and development banks begin redirecting resources toward new entrants in the real estate market or different priority sectors, mature developers will need to seek broader, more sustainable sources of capital.

This shift is not remarkable in itself: It represents the natural evolution of developer financing. In the first phase, companies depended heavily on government or sovereign fund support. The second phase brought greater use of bank borrowing and syndicated loans, which required stronger credit monitoring and tighter governance. The third phase now involves tapping capital markets through REITs (real estate investment trusts) and sukuks (Islamic bonds structured to comply with sharia). These sit alongside traditional bonds, IPOs (initial public offerings), private equity and other alternative instruments. However, investors and lenders demand institutional maturity – including transparent governance, rigorous financial management and credible long-term strategies. Business plans must be reviewed and adapted to meet the standards of banks, institutional investors and regulators.

What are the options?

Developers in Saudi Arabia, like their peers worldwide, are now exploring pathways to alternative financing as a way to reduce their dependence on a single source and align their funding with business maturity. Their choice of instruments – bank loans, capital-market products such as REITs and sukuks, or private equity – will depend on their own particular strategy, project pipeline and investor positioning.

Conventional and institutional financing
Traditional sources of funding remain central for real estate developers. Bank loans, whether bilateral or syndicated, provide straightforward debt financing from local or international banks, with syndication allowing multiple lenders to share risk on large projects. Project finance, typically structured through a special purpose vehicle, is “non-recourse” - meaning repayment depends entirely on project cashflows – and is often used for large-scale developments. Mezzanine financing offers a hybrid of debt and equity, giving lenders higher returns in exchange for greater risk and filling funding gaps between equity and senior debt. Development finance institutions such as the IFC (International Finance Corporation) or EBRD (European Bank for Reconstruction and Development) also play a role, supporting projects that enhance sustainability or social impact.

Public-private and government-linked models
PPPs (public-private partnerships) are a common mechanism, and include arrangements such as “build-operate-transfer” – sharing both risk and capital between public and private actors. “Land-for-equity” swaps provide another route, with governments contributing land in return for project equity, reducing upfront costs for developers. Long-term leases or development rights similarly lower capital intensity by avoiding outright land purchases. Sovereign wealth funds, both domestic and foreign, can also act as co-investors, helping finance and de-risk large developments.

Capital market instruments
Capital markets provide multiple ways to access larger pools of capital. IPOs allow developers to list shares on exchanges and raise equity from public investors, while private placements achieve the same with institutional or strategic backers, without going public. Debt issuance offers further options, through corporate bonds or sukuks. REITs pool income-generating property assets into listed vehicles that provide both liquidity and dividend yields to shareholders.

Alternative and innovative financing
Developers are also turning to newer, less conventional channels. Crowdfunding platforms pool contributions from retail investors for specific projects, while tokenization and blockchain financing enable fractional ownership through digital tokens, improving liquidity and accessibility. Revenue-based financing and securitization monetize future cashflows, such as rents or leases, by packaging them into tradable securities. Forward or off-plan sales likewise generate upfront capital by selling units before construction is completed. Joint ventures (JVs) with international developers can bring capital, expertise and risk-sharing, while “sale-leaseback” transactions release capital by selling an asset and leasing it back for continued use. Meanwhile, private credit and debt funds offer flexible but costlier alternatives to bank lending, often with faster execution.

ESG and thematic financing
Finally, thematic instruments are gaining ground. Green bonds and green sukuks fund environmentally sustainable real estate projects, while sustainability-linked loans tie borrowing costs to performance against ESG (environmental, social and governance) targets. Social impact funds focus on affordable housing, healthcare and community infrastructure. In addition, carbon credit-linked financing allows projects that generate tradable carbon credits to channel those revenues into development funding.

How can we support you?

Roland Berger is uniquely positioned to guide developers in the KSA as they move from government-backed to market-driven financing. Our support spans three core areas that together help developers align with investor expectations and secure sustainable growth. The first is strategy and business plan review, where we work alongside you to assess and refine your strategies, ensuring they align with the most suitable financing pathways. Business plans are tested against the requirements of banks, institutional investors and regulators, while project pipelines are stress-tested to determine which developments are best suited for instruments such as REITs or PPPs.

The second area is financial structuring and market access. Here, the focus is on designing tailored financing strategies across equity, debt, sukuks, PPPs and innovative models. We also support the creation of credit rating and monitoring frameworks to improve bankability, and advise on IPO readiness, sukuk issuance and REIT structuring. Finally, we help with implementation and ecosystem engagement. This includes establishing governance, reporting and compliance mechanisms, benchmarking global models and adapting them to Saudi regulations, and engaging with regulators such as SAMA (the Saudi Central Bank) and the CMA (Capital Market Authority), as well as with banks and investors, to ensure alignment across the financing process.

To find out more about how Roland Berger can support you in diversifying funding and accessing alternative financing pathways, please reach out to our team.