Land tax to bring down house rent

With the Cabinet’s nod to impose 2.5% tax on unused plots of land in urban areas, house rent will decrease and competition in the housing sector will increase, according to real estate experts.

“I encourage the private sector to cooperate with the Ministry of Housing to provide affordable housing to the people,” said Mousa Al-Qaynan.

If the ministry and the private sector work together, the housing crisis will be solved, he said.

Real estate agent Ahmad Al-Matrafi said the new law will finally make housing an affordable investment for middle-class citizens.

The involvement of the private sector will mobilize the previously dormant industry, he said.

Al-Matrafi said the development will also offer jobs for young Saudi architects and real estate agents.

Landowners will find it hard to sit on unused plots of land in urban areas because they will have to pay an annual tax of 2.5%. So they will have to develop their plots of land for housing projects or for commercial investments.

By making land costly to hold, the state will help “stimulate the creation of appropriate housing at appropriate prices for all citizens,” Housing Minister Majid Al-Huqail said in a statement to Saudi Press Agency last month.

In particular, the tax will increase the supply of housing in city centers, “which are monopolized by investors in the real estate sector,” said Al-Huqail, who has a background as a real estate developer as former managing director of a real estate company.

“In reality, housing is not a problem of resources, it’s not a problem of land — it’s a problem of thought,” the housing minister said last month.

The imposition of tax on white land in urban centers will bring SR75 billion to the government coffers, bring down real estate prices to rational levels and solve the country’s housing problem, according to real estate experts.

The Housing Ministry estimated empty plots made up around 40 percent of the capital Riyadh in 2013 at a time the state was spending billions of dollars building outside the city.

Many Saudi developers earn more on trading land than building on it, according to Bloomberg. Shares of developers have tumbled since the debate on the white-land tax gathered momentum.