The Council of Ministers in Saudi Arabia approved the proposed white land tax law on 30 November 2015. 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.
Though many details of the tax have yet to be released, 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 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.
Jamil Ghaznawi, national director and country head of JLL KSA, said: “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.”
The Ministry of Housing will publish detailed regulations within the next six months.