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Land tax to stimulate growth in housing sector, says expert

A view shows the construction of the King Abdullah Financial District in Riyadh, Saudi Arabia May 12, 2016.  Image used for illustrative purpose.

A view shows the construction of the King Abdullah Financial District in Riyadh, Saudi Arabia May 12, 2016. Image used for illustrative purpose.

REUTERS/Faisal Al Nasser

19 June 2016
JEDDAH -- A property consultant has said the new tax on white land approved by the Council of Ministers on Monday will lead to a fundamental shift in the Saudi real estate market.

Jamil Ghaznawi, country manager of JLL Saudi Arabia, which is a leading real estate and investment consultancy firm in the Middle East region, said: "The new law will result in a fundamental change in Saudi Arabia's real estate market and help stimulate further development to address the severe shortage of middle income housing."

While it is too early to say precisely how the market will react, Ghaznawi said, JLL expects the new law would result in several positive changes.

He said many land owners will come up with plans and begin development to avoid the additional tax burden by holding undeveloped land while others will seek to sell plots to other developers, helping reduce land prices, which have been soaring over the last few years to reach 30 to 50 percent of the development cost.

"Lower land values will make development more financially viable and therefore stimulate additional activity," Ghaznawi said.

Revenue from the land tax will allow the government to undertake additional housing projects and the Ministry of Housing has already announced a number of major projects targeting the affordable housing sector, he added.

According to regulations approved by the Cabinet, white land is defined as empty land designated for residential and commercial use within the urban growth boundaries in cities across the Kingdom.

The tax will be imposed in four stages, the timing of which has not been announced yet.

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In the first stage, all undeveloped land over 10,000 sq. meters within the certified master plans for development will be taxed.

In the second stage, single owners of plots of "developed land" exceeding 10,000 sq. meters in certified master plan areas will be taxed. Though the announcement did not define "developed plots", it is assumed this relates to sites that have been serviced with horizontal infrastructure (roads, power, drainage, etc.) but where no vertical development has taken place yet.

In the third stage, single owners of smaller plots of developed land (exceeding 5,000 sq. meters) will be subjected to the tax.

In the fourth stage, all single owners of plots exceeding 10,000 sq. meters in a city will be taxed.

The Ministry of Housing will be responsible for collecting the tax, in addition to any imposed fines on land owners who disregard the rules and regulations. The rate of tax has previously been announced to be 2.5 percent of the value of the plot.

© The Saudi Gazette 2016

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