Saudi Arabia to tax ‘vacant’ urban land

The government of Saudi Arabia on Monday approved a number of details regarding the 'White Land Tax' to discourage owners of urban land from keeping it vacant.

While no timelines have been given, the government said it will start imposing a White Land Tax @ 2.5 per cent of the value of the site in a phased manner, starting with bigger plots and progressively moving to cover all undeveloped plots.

White land is defined as empty land designated for residential and commercial use within the urban growth boundaries of all cities across the country.

Saudi Arabia's Council of Ministers met in Jeddah on Monday and approved a number of regulations for the introduction of the White Land Tax.

"The new law will result in a fundamental change in Saudi Arabia's real estate market and help stimulate further development to address the severe shortage of middle income housing," says Jamil Ghaznawi, Country head for Saudi Arabia at JLL, a real estate investment management firm.

According to JLL, the tax will be imposed in stages.

Stage one applies to undeveloped land over 10,000sq m within certified master planned developments will be taxed (although no list of these master planned developments was included in the announcement).

At a second stage, single landowners of large plots of developed land (exceeding 10,000sq m) in certified master planned developments will be taxed. The definition of 'developed plots' is again not included in this announcement but we are assuming this relates to sites that have been serviced with horizontal infrastructure (roads, power, drainage, etc.) but where no vertical development has yet taken place.

At the third stage, single landowners of smaller plots of developed land (exceeding 5,000sq m) in the certified master planned developments will be subject to the tax.

And finally, at the fourth stage, single landowners of plots exceeding 10,000sq m in one city will be subject to the tax.

The Ministry of Housing will be tasked with collecting the tax, in addition to any imposed fines on landowners who disregard the rules and regulations. The rate of tax has previously been announced to be 2.5 per cent of the value of the site.

JLL said that while it was too early to say precisely how the market would react, the firm expects the new law would spur development of vacant land by some landowners, who it expects will bring forward plans and begin development in order to avoid the additional tax burden of holding undeveloped land.

The firm says some others may seek to sell sites to other developers, which should help reduce land values, which have been soaring over the last few years. JLL estimates the land values to amount to 30 to 50 per cent of the cost of developing.

JLL maintains that lower land values will make development more financially viable and therefore stimulate additional activity. Revenues from the tax, it adds, will allow the government to undertake additional housing projects with the Ministry of Housing already announcing a number of major projects targeting the affordable housing sector.

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