Equity
Synonyms: Home Equity، Owner’s Equity، Net Equity
Last updated: 2026-09-25
Short Definition
Equity in a property is the portion of its market value that actually belongs to the owner after deducting the outstanding financing balance and any other debts secured on it, calculated as: current market value − outstanding financing balance.
Overview
Legal Basis
The Registered Real Estate Mortgage Law issued by Royal Decree M/49 dated 13/8/1433H governs the creation of mortgages over real estate and the mortgagee’s priority in recovering its debt from the sale price — which in practice determines what remains for the owner. The Real Estate Finance Law issued by Royal Decree M/50 dated 13/8/1433H regulates financing contracts and their forms. For real estate funds, Article 37 of the CMA’s Real Estate Investment Funds Regulations requires the fund’s real estate assets to be valued at least every six months by two accredited valuers, and net asset value per unit to be calculated by subtracting total liabilities from total assets and dividing by the number of units.
Practical Example
A citizen bought a villa in Dammam in 2021 for SAR 1,500,000, paying SAR 150,000 (10%) and financing the remaining SAR 1,350,000 through murabaha with a registered mortgage. In 2026 the outstanding balance is SAR 1,150,000 and an accredited valuer values the villa at SAR 1,650,000. His equity = 1,650,000 − 1,150,000 = SAR 500,000, about 30% of the value. But if he sells, he must account for 2.5% brokerage (SAR 41,250) and any early-settlement compensation allowed under SAMA rules, so the net amount he receives will be below SAR 500,000.
Common Mistakes
- ✗Calculating equity from a hoped-for asking price instead of a value supported by an accredited valuation or comparable deals.
- ✗Forgetting selling costs such as brokerage and early-settlement compensation when estimating the amount actually received.
- ✗Confusing total instalments paid with equity — much of the early instalments goes to financing cost, not principal.
- ✗Assuming a customer under ijara ending in ownership holds the title deed before the contract ends.
- ✗Relying on appreciation alone to build equity without a repayment plan.
International Differences
In the US and UK, owners commonly unlock equity through home equity loans, home-secured credit lines or equity-release products for older homeowners, and in the UAE several banks offer cash-out refinancing. In Saudi Arabia, any release of equity happens within Sharia-compliant structures, SAMA caps and the financier’s policy, and the legal structure (ijara or murabaha) is decisive in determining who holds the title deed.
