Interview: Jamil Ghaznawi, JLL Saudi Arabia
Construction Week speaks with JLL KSA's Jamil Ghaznawi about the expected impact of Saudi Arabia's 2.5% tax on white land
Jamil Ghaznawi, national director and country head of JLL Saudi Arabia, talks to Construction Week about the Kingdom's recently-approved 2.5% tax on white land.
Proceeds from the tax will be deposited into an account of the Saudi Arabian Monetary Agency, and will be used to fund housing and related infrastructure projects in the Kingdom.
1. When do you expect the law to be enforced?
It’ll likely be over a year before the law goes into effect because numerous steps have to be accomplished first.
Things can’t happen overnight when applying such a law across a vast expanse that is the Kingdom.
The implementation needs to consider all the stakeholders involved to support the tax collection process, the enforcement of the law and the development processes that ensue.
There will be major campaigns to properly inform people of the law and its benefit through social media and traditional press.
2. How do you expect the housing ministry to carry out the implementation process?
The ministry announced that it will start on the largest cities and I expect Jeddah, Riyadh and the Eastern Province to take priority.
Land in the past did not depreciate and so not every landowner by definition is a developer. They never had to wear that hat.
The housing minister stated his ministry will support with approvals, proper zoning, and expeditious permits for utility connections.
The ministry will likely abandon its role as developer and play a role of incubator and regulator instead.
Is it true that the tax could generate up to $22.6bn (SAR85bn) in revenues?
We don’t think these are real numbers as we don’t know what the implementation mechanisms will be like, and the laws governing certain zones.
3. How will the tax collections be spent?
Revenues will go towards financing infrastructure and utilities development, and supporting the coffers of municipalities.
Hopefully, the percentage of tax revenues that will be dedicated to new housing developments will be released in the housing procedures months from now or will be discretionary to the ministry’s strategy.
4. How does this law alter the state of Saudi's housing developments?
It is a shift from when the ministry had $66bn (SAR250bn) to develop [projects all by] themselves.
Taking on the role of developers has proven to be an inefficient strategy as we have seen with many delays in processes and quality issues
5. Which financing institutions are involved will be responsible for tax collections?
The Real Estate Bank will be the co-investor, financing the developer and end users towards future housing developments and even create a secondary markets for mortgages.
How do you expect this law to impact property pricing in Saudi Arabia?
In Jeddah and Riyadh and in anticipation of the royal decree announcement a year ago that a white land tax was coming, prices started to react, decreasing by as much as 35% but only on the cities’ outskirts.
In prime locations within Riyadh or Jeddah, there is continued demand on residential or developed properties so there is no incentive to sell and thus prices held.
6. Will prices in prime locations change if white land is sold in large quantities nearby existing ones?
We [will] have to monitor [the market]. We didn’t want to quantify a figure for the future. It is too early.