KSA real estate shares dive on land tax news

Tax on undeveloped urban plots is designed to spur construction boom in housing sector by liberating land

Saudi real estate shares have taken a dive after the country announced it was to tax undeveloped urban land.

The move was announced on Tuesday after the government approved a proposal to levy fees against vacant land in urban areas of cities and provinces throughout the Kingdom.

The move was suggested by the newly formed Council for Economic and Development Affairs and approved by the Cabinet at its regular meeting on Tuesday.

It is the first major economic policy initiative announced by the Saudi government since King Salman took the throne in January, and may spur a push to develop more land into affordable homes which are desperately needed by the country.

Real Estate Consultancy Jones Lang LaSalle published a report in 2014 that said the Kingdom need 1 million housing units, and that it needed to construct around 200,000 homes annually to keep up with demand. One of the major barriers to that is the cost of land in urban areas which, in some cases, can constitute 50% of the cost of developing a project.

The Saudi government has already earmarked $67bn for 500,000 housing units for low-income families, and the new tax move is seen to be a way of liberating land which is sitting undeveloped in key urban centres.

The move yesterday sparked a sharp response by investors. Shares in major property developer Dar Al Arkan sank 6.5% on Tuesday morning, while Emaar Economic City dropped 6.60%.

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