New Saudi Arabia land tax to trigger sales flurry

01/12/2015 07:52 AST

A new tax on undeveloped land in Saudi Arabia is expected to trigger a flurry of sales, say brokers.

Saudi Arabia’s council of ministers has approved a controversial “white land” tax making it more expensive for owners of urban land to keep it empty.

Under the new law, owners of empty plots of urban land designated for housing or offices in towns and cities will have to pay a tax of 2.5 per cent of the value of the land each year.

According to the official Saudi press agency, the tax will be deposited into an account of the Saudi Arabian Monetary Agency, which will be used to fund housing and related infrastructure projects across the kingdom.

It said that the new rules will come into force six months after the Saudi ministry of housing publishes detailed regulations laying out exactly how they will work.

Some land owners are likely to accelerate project plans to avoid the additional tax burden, “while others will seek to sell sites to other developers, which should help reduce land values that have been soaring over the last few years”, said the real estate services firm JLL in a report.

Like the UAE, Saudi Arabia has suffered from high levels of land speculation where investors buy plots of urban land, often already supplied with infrastructure such as roads, electricity and water connections, merely to hang on to them in the hope of selling them again at a higher price.

The law aims to make it far less attractive for these investors to hoard land and instead to develop it as much-needed housing.

According to estimates by the IMF, excluding people living in traditional housing, just 36 per cent of 30 million or so Saudi citizens own a home.

In 2011, the government unveiled a plan to build 500,000 homes, allocating large amounts of state funds. Progress has been slow, partly because of ownership rights over land.

“We expect a fundamental change in Saudi Arabia’s real estate market once the new fee on undeveloped land takes effect, as the developers will be the main players and land owners will start to seriously consider different partnering options to develop their land holdings,” said Jamil Ghaznawi, JLL’s national director in the kingdom.

The National