Saudi fees on undeveloped land to spur affordable housing: experts

A decision by the Saudi cabinet on Monday to impose fees on undeveloped land could help create more affordable housing, experts say.

The decision was taken during a cabinet meeting chaired by King Salman bin Abdulaziz on Monday, the state news agency SPA reported.

“The Cabinet approved that the Council of Economic Affairs and Development shall prepare organizational arrangements and mechanisms for imposing fees on unbuilt lands within the urban boundaries of cities and provinces,” the SPA said.

Mutlaq Al Baqmi, editor in chief of the Maaal business newspaper, told Al Arabiya News that in its application the fee will help generate enough supply of land in the real estate market which in turn is expected to decrease home prices.

“It is expected that after this decision, there would be abundance in supply, and therefore the supply would aid in decreasing the price, making it easier for the average citizen to buy land, to build their homes,” he told Al Arabiya News.

Some 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, to the process of developing it. The tax could change that and spur home building activity.

While it remains unclear to how much land is undeveloped in the Kingdom, Baqmi said the numbers could be high.

The decision aims to reduce undeveloped land, enabling more Saudis to purchase properties after prices reached “astronomic figure especially in Riyadh,” he said.

“The well to do citizen, upper middle class, are unable to buy land in areas with services and in close proximity to offices and schools because of the high prices,” he said.

The mechanism of application of the tax is yet to be announced. But Abdul Hameed Al-Amri, a financial analyst and member of the Saudi Economic Association said it will depend on the size of the land in question, according to Al Arabiya.Net.

But Al-Amri says the decision was in the interest of the Saudi people.

While the fees are expected to spark a change in prices, Al Baqmi predicts that some landowners would stick to the prices they have set to undermine the impact of the tax, an attachment he believes would not continue for long.

If the fee is imposed as per a study published in the Maaal newspaper in 2014, in seven years’ time, owners would pay a fee as high as the price they paid for the plot of land.

In two to three years, Al Baqmi predicts that the changes in prices would be noticeable.