Saudi housing costs could halve with new land tax

Experts tell Saudi media the move could see massive chunks of urban space liberated for development

Riyadh, Saudi Arabia's capital.
Riyadh, Saudi Arabia's capital.

The cost of housing could halve in Saudi Arabia after the cabinet approved a proposal to tax undeveloped land in urban areas, economists and real estate experts have told local media.

The cabinet's decision, announced on Monday night and the first big economic policy initiative since King Salman took the throne in January, aims to encourage owners to sell land so it can be developed.

Much urban land in the kingdom is owned by wealthy individuals or companies who prefer holding it as a store of value, or trading it for speculative profits, rather than developing it. Some analysts have estimated 40 or even 50 percent of space inside big cities such as Riyadh, Jeddah and Dammam is undeveloped.

Therefore the tax is politically sensitive because it may hurt the interests of influential people. But a lack of affordable housing has become a major social problem in the kingdom, and the tax could make more land available for home building.

The government announced in 2011, after social discontent prompted uprisings elsewhere in the Arab world, it planned to build 500,000 homes over several years, earmarking $67 billion of state funds, but progress has been slow, partly because of the difficulty of obtaining land.

The cabinet gave no details of the likely size of the tax, how it would be implemented, or a timetable for introducing it. An economic council will make proposals to the Shoura Council, a top advisory body to the monarch.

Economists estimate 4 billion square metres of land could be subject to fees. A total of 65 percent of land in the Eastern Province is currently untapped, 60 percent in Riyadh and 70 percent in the western region, they told Arab News.

Abdullah Al Maghlouth, a member of the Riyadh Chamber of Commerce and Industry’s committee on investments and securities, told the daily the decision would make land available to citizens and help the national economy.

Mazen Al Sudairi, head of research at Al Istithmar Capital in Riyadh, told Reuters rising prices and limited availability of land had dampened many areas of Saudi business activity, so the tax could have a broad, positive effect on the economy.

"The decision opens growth opportunities even to other sectors,” he said. Retailers, which mainly depend on leases, can now buy land and expand. Cement firms will grow with rising demand, and even banks will prosper as they will lend to those firms."

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