Saudi Arabia property fund will open the door to City investors

Saudi Arabia is further lifting its veil to British investors with a £30m fund to allow them to tap into the country's booming property market.

The Bahrain-based Unicorn Investment Bank (UIB), which plans to float on London's AIM next year, is launching its KSA Real Estate Fund to circumvent strict Saudi rules which prohibit foreigners investing in property in the country. The Islamic bank will use cash from major investors in the City to buy into a housing estate situated in the northern suburbs of Riyadh, the Saudi capital, which will be sold by 2007.

A young, upwardly mobile Saudi population is falling over itself to exploit a recent relaxation of mortgage law to snap up homes there. UIB reckons that is driving house prices sky-high and will continue to do so for the foreseeable future.

Its earlier Saudi property fund, the first of its kind, closed yesterday. The bank said it took 18 months to structure but less than a month to raise the cash from investors hungry for exposure to Saudi. That appetite prompted UIB to start work immediately on a second fund, which will be marketed over the coming weeks.

Leena Qassim, the director of asset management at UIB, said: "Saudi is the untouchable market at the moment for anyone not a Saudi national. The rapid increase in the value of real estate in the country is sustainable because it is driven by demographics, the increasing availability of mortgage lending, and the growing levels of wealth in the Saudi kingdom."

The fund adheres to Islamic shariah principles, which dictate that all investment must be backed by physical assets. It also forbids interest payments.

Foreign investment into the kingdom looks set to receive a boost after the green light was given for the Gulf nation to join the World Trade Organisation next month.

Last week the general council of the WTO rubber-stamped an internal recommendation for Saudi to become the organisation's 149th member country. The decision came after 12 years of talks and cleared the path for the leading oil state to become a full member of the WTO and attend ministerial trade talks which are due to be held in Hong Kong next month.

Protracted negotiations had often foundered on Saudi fears that the WTO's trading regulations would open the country to imports of goods such as alcohol, pornography and pork - banned under Islamic law.

Last week's move by the WTO is seen as a step towards opening the surging, but still strongly protected, Saudi economy.