Saudi Arabia's new land tax aims to break real estate investors' monopoly

Published November 22nd, 2015 - 08:48 GMT

The imposition of tax on white land in urban centers will bring SR75 billion to the government coffers, bring down real estate prices to rational levels and resolve the country’s housing problem, according to real estate experts.

They urged the government to implement the law on all undeveloped plots of land across the Kingdom without exception.

The consultative Shoura Council has approved legislation imposing a levy to be paid by the owners of so-called white land — plots within cities often complete with roads, water supply and streetlights that remain empty.

The Shoura recommended a tax of 2.5 percent of the land value. Pushing owners to build on empty plots or sell them will enable the government to find land in urban areas and avoid construction in desert regions to solve the housing shortage, which is currently estimated at 1.5 million units.

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

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

Custodian of the Two Holy Mosques King Salman gave his initial approval of the taxation move in March. Details including the time frame for the implementation have yet to be determined, Shoura Council President Dr. Abdullah Al-Sheikh said, adding that the tax would be applied in stages.

The hike in real estate prices has complicated the Kingdom’s housing problem. The demand for imposing tax on white land was mooted for discussion seven years ago as a solution to bring down prices and help citizens own their homes.

The consultative body passed the law on white land taxation during an ordinary session last week and said it was not aimed at increasing state revenue but to resolve the housing crisis.

“The fee will force real estate brokers to sell properties they own, creating a balance in demand and supply,” the Shoura observed. Its phased implementation would be based on an executive bylaw, it added.

“The rise in prices was one of the main reasons that prevented citizens from having own homes,” said realtor Mohammed Al-Faraj. He called for implementation of the measure without further delay.

“The new law will make keeping plots of land unused for long periods unprofitable and force real estate owners to sell them to avoid taxation. When they start selling the prices will go down to reasonable levels,” Faraj told Al-Hayat Arabic daily.

Housing Minister Majid Al-Huqail said by making land costly to hold, the state would help stimulate the construction sector and subsequently appropriate housing at reasonable prices would be available for all citizens.

“In particular, the tax will increase the supply of housing units in city centers, where land ownership monopolized by investors in the real estate sector,” he said.

Faraj said the introduction of the new tax was essential to end the monopoly of real estate investors. He estimated white land in Riyadh city at 49 percent of the urban area, in Dammam 50 percent and Jeddah 40 percent.

“These are whopping figures,” he said and called for executing the law in urban as well as rural areas.

Mohammed Al-Dossary, another realtor, expected the tax to bring down prices quickly. “Many real estate owners will not be able hold their land paying the tax, which will bring at least SR50 billion to the state coffers annually. Even if they sell 10 percent of land, it will solve the problem to a great extent,” he said.

 


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