Saudi vacant land tax approved

For full coverage of Middle East business developments, see MEED

The speed at which Saudi Arabian government has approved the new tax for unused land emphasises the importance to the kingdom of addressing housing shortages, JLL says in a report released this morning.

Details of the tax have yet to be released, though the Ministry of Housing has been directed to publish detailed regulations within six months. JLL says the following have been approved:

  • An annual tax of 2.5 per cent 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 at the Saudi Arabian Monetary Agency (Sama). This will be used to fund housing and related infrastructure projects.
  • The law will come into force six months after the release of the detailed regulations by the Ministry of Housing

Jll says the law is expected to stimulate further development to 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 be 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 holding,” says Jamil Ghaznawi, national director and country head of JLL KSA.