Saudi Arabian government to tax owners of undeveloped housing land

 | December 06, 2015

undefinedThe government of Saudi Arabia has revealed details of the taxes on undeveloped plots of land in urban areas, which come into effect next year.

Owners will be taxed 2.5 per cent of the value of undeveloped urban land in a drive to stop speculation and get homes constructed.

Saudi developers can currently earn more by trading land than by building on it. Shares of developers have tumbled since the debate on the white-land tax gathered momentum earlier this year. Dar Al Arkan slid 1.6 percent following the announcement last week closing at 6.2 riyals, its lowest level in four years. Saudi Real Estate Co, known as Serco, was down 1.2 percent.

The White Land plan was revealed in March this as the kingdom tackles a housing shortage problem for its young and growing population.

The newly formed Council of Economic and Development Affairs, chaired by the new king’s son, would “urgently” prepare the required regulations, the Saudi cabinet said in a statement carried by the official state news agency.

undefined'White lands' are large plots of idle urban land that are viewed as a major contributor to the kingdom's housing shortage. Whole areas are in need of renewal and upgrading (pictures, this page taken in Jeddah around the Mall of Arabia).

Real estate owners have seen the land as an investment, holding it for long periods watching its value soar, instead of developing it for housing.

The government says about 10 million people, more than half of the country’s native population, live in rented accommodation and Saudi homeownership is about half the global average.

Earlier this year, Essam al-Zamel, a local business commentator, told the Wall Street Journal that the decision would have major consequences on the local economy.

He said “We are talking about trillions of riyals frozen for years that have been hampering development in both the public and private sector."

The council recommended a tax of 2.5 percent of land value that will drive owners to build on empty plots or sell.

undefinedThis will avoid building in new desert, which is more costly, and will help meet a shortage of affordable homes, which some sources say maybe 1.5 million.

In Saudi Arabia, land is often used as a way to store wealth and plots are traded multiple times, inflating prices and disconnecting the land from its development value.

“The fee will fundamentally change the market,” Jamil Ghaznawi, head of Saudi Arabia for broker Jones Lang LaSalle Inc, told Bloomberg. “We are talking about a considerable fee that will shift the power from the landowners to the developers once land investors start feeling the pain of having to pay.”

The Housing Ministry estimated empty plots made up around 40 percent of the capital Riyadh in 2013 at a time the state was spending billions of dollars building outside the cities.

King Salman gave his initial approval of the tax in March. Details including the time frame for implementation have yet to be determined, Shoura Council President Abdullah al-Sheikh said in a statement to the official Saudi Press Agency. The tax will be applied in stages, he said.

King Salman earlier this month replaced the housing minister one day after vowing to step up efforts to solve the problem of housing.

“We are determined, God willing, to develop practical and urgent solutions to ensure providing adequate housing for citizens,” he said in his first address to the nation since becoming king in late January.

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