Joint Venture With a Saudi Landowner: A Worked Example of Splitting the Profit

How a foreign developer and a Saudi landowner can share a project: land contribution versus cash, pro rata profit versus revenue share, and who carries cost risk.

Many Saudi landowners hold well-located plots but do not want to develop them, while many foreign developers have the expertise and capital but not the land. A joint venture joins the two, and the key decision is how the value is split. The worked example below compares a profit share based on contributions with a fixed share of sales revenue, and shows that the real difference is who carries the risk of cost overruns.

The situation

A Saudi landowner will contribute a plot to a residential for-sale project. A foreign developer, through its Saudi entity, will fund and manage design, construction, sales and finance. The parties are choosing between two ways of splitting the proceeds.

Assumptions (illustrative)

• Land value agreed on the basis of an accredited valuation: SAR 20,000,000.
• Developer's construction cost estimate: SAR 40,000,000.
• Developer's soft costs (design, permits, supervision, marketing, finance): SAR 10,000,000.
• Expected total sales revenue: SAR 90,000,000.
• Option A: profit shared in proportion to contributions. Option B: landowner receives 30% of sales revenue.

Step 1: Total cost and expected profit

Developer contribution: SAR 40,000,000 plus SAR 10,000,000 equals SAR 50,000,000. Total cost: SAR 50,000,000 plus SAR 20,000,000 equals SAR 70,000,000. Profit: SAR 90,000,000 minus SAR 70,000,000 equals SAR 20,000,000.

The project creates SAR 20,000,000 on top of what both parties put in. The split decides how it is shared.

Step 2: Option A: pro rata profit share

Landowner share: SAR 20,000,000 divided by SAR 70,000,000 is about 28.6%. Landowner profit: SAR 20,000,000 multiplied by 20/70 equals about SAR 5,714,286. Developer profit: SAR 20,000,000 minus SAR 5,714,286 equals SAR 14,285,714.

Each party earns in proportion to what it contributed, and both returns move with the project's outcome.

Step 3: Option B: revenue share

Landowner receives 30% of SAR 90,000,000, which equals SAR 27,000,000, or SAR 7,000,000 above the land value. Developer receives SAR 63,000,000; profit SAR 63,000,000 minus SAR 50,000,000 equals SAR 13,000,000.

At the expected revenue, the landowner does better under Option B and the developer slightly worse.

Step 4: Revenue falls by 10%

Revenue SAR 81,000,000. Option A profit: SAR 11,000,000; landowner about SAR 3,142,857, developer about SAR 7,857,143. Option B: landowner SAR 24,300,000; developer SAR 56,700,000 minus SAR 50,000,000 equals SAR 6,700,000.

Both parties suffer from a weaker market under either option, but the developer's profit falls further under Option B.

Step 5: Costs overrun by SAR 5,000,000

Revenue back at SAR 90,000,000. Option B: developer profit SAR 63,000,000 minus SAR 55,000,000 equals SAR 8,000,000; landowner still SAR 27,000,000. Option A, with the agreed 20/70 ratio: profit SAR 15,000,000; landowner about SAR 4,285,714, developer about SAR 10,714,286.

Under a revenue share the developer absorbs the whole overrun. Under a profit share the landowner carries part of it.

Step 6: Read the result

Developer profit loss from the overrun: Option B, SAR 13,000,000 minus SAR 8,000,000 equals SAR 5,000,000. Option A, SAR 14,285,714 minus SAR 10,714,286 equals SAR 3,571,428.

A developer confident in its cost control may accept a revenue share; one facing cost uncertainty should prefer a profit share.

What changes the answer

• A higher land valuation raises the landowner's share under Option A, so the valuation basis must be agreed and documented first.
• Delay adds finance costs, which are the developer's under Option B and shared under Option A if they count as project costs.
• Off-plan sales under Wafi bring escrow timing into the cash flow, affecting when either party is actually paid.
• If the landowner wants some units instead of cash, the choice of units and their valuation become new points to negotiate.
• Tax treatment of the land contribution and of each party's proceeds depends on the structure and must be confirmed with a licensed adviser.

What the numbers tell you

• Agree the land value on an accredited valuation before discussing percentages.
• Choose the split on the basis of who should carry cost risk, not only on the expected outcome.
• Define which costs count as project costs, including finance and overheads.
• Put decision rights, deadlocks and exit provisions in the agreement, reviewed by licensed advisers.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira works with foreign investors on the property side of entering Saudi Arabia: finding land or premises, due diligence, design, construction and asset management. For licensing, tax and legal steps, work with a licensed adviser; we coordinate with yours so the property decision fits the structure you choose.