Following the cabinet’s earlier approval of a proposed white land tax, the Council of Ministers formally approved the law on Monday 30th November. The speed at which the law has been approved emphasises the importance of addressing the current shortage of housing at the highest levels of government.
Many details of the land tax have yet to be released (with the Ministry of Housing tasked with publishing detailed regulations within 6 months), however the following aspects of the law have now been approved:
An annual tax of 2.5% of the value of the land will be applied
This tax will apply to all land designated for residential and residential/commercial use within urban boundaries
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
The law will come into force 6 months after the release of the detailed regulations by the Ministry of Housing
The law is expected to stimulate further development which will address the severe shortage of middle income housing in Saudi Arabia in a number of ways:-
Some land owners will bring forward plans and begin development in order to avoid the additional tax burden of holding undeveloped land
Others will seek to sell sites to other developers which should help reduce land values, which have been soaring over the last few years
Lower land values will make development more financially viable and therefore stimulate additional activity
Revenues from the tax will allow the government to undertake additional housing projects
We expect to witness 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 in order to develop their land holdings.
Author: Jamil Ghaznawi
Jamil has over 12 years of experience in Saudi Arabia with an emphasis, primarily in Capital markets & Land Transactions, real estate business development and investment. Previously, he held senior executive positions with Ewaan Global Residential Company looking after strategy and business development as well as real estate finance. A Saudi national, Jamil holds BSc in Business Administration from the American Intercontinental University in Los Angeles and a MSC in Accountancy from California State University Fullerton. Mr Ghaznawi is a Certified Public Accountant (CPA) from the state of California.