to economists). High prices coupled with strong internal demand have created an acute housing problem in the country, especially for the lower and middle income sector. In order to address this issue, the Shoura Council has issued a paper last month in which it announced that the council is considering taxing unused land in the future. According to the 2011 NCB Capital report on Affordable Housing in Saudi Arabia, as of 2009,
W
undeveloped land comprised 77 per cent of Riyadh’s total land area, while developed land was just 14 per cent. While this seems to suggest that there is a large supply of land ready to be developed as demand increases, the reality is different. “Te majority of land is owned by a small number of large investors who buy and hold
[it] for years, if not decades. Tese investors do not develop the land or sell to third party developers so in effect, artificially reduce the land available for development in the city,” the report said. “With no property taxes and no capital gains taxes, these investors prefer to hold for many
years and enjoy the eventual capital gains with no running costs (for development or taxes) apart from the opportunity cost of investment. Additionally, land, and real estate in general in Saudi, is almost entirely equity owned, hence investors do not have the pressure to generate cash flows to pay interest over their holding periods,” the report added. Taxing vacant land by collecting Zakat (Islamic tax) could deter investors from holding on to
land for extended periods of times, the council believes. “In Riyadh you can see many large plots of undeveloped land in central locations surrounded
by housing. If it became less attractive for people to hold undeveloped land, it would allow construction of housing and infrastructure, dealing with some of the bottlenecks in the economy,” Paul Gamble, head of research at Jadwa Investment in Riyadh told Reuters. Due to high land prices, speculators often aim to resell the land for a quick profit. Land
development on the other hand incurs higher costs and a longer time before profit is eventually realised. “Speculation is a major issue in Saudi Arabia; speculators have made it very difficult for developers to deliver housing,” Raeyd Al Dakheel, CEO of Mawten Real Estate Company in Riyadh said at the Middle East Real Estate Summit in Abu Dhabi last month. According to Gamble, the impact of a land tax on land speculation will also depend on the definition of ‘developed land.’ “People would be less inclined to speculate on raw land. But the question is what passes as undeveloped land? If you only need to run a pipe underneath it or clear it, the potential Zakat could be avoided and it would still be easy to flip the land,” he told Reuters. Dr. Bassam Boodai, MD and CEO of Jenan Real Estate Company in Al Khobar, is sceptical about the impact of a potential unused land tax on land cost. “Te land tax may help control and monitor the land trading and minimise land flipping, however it will not have a major impact on land cost in the medium-long term. From the perspective of the land cost impacting on the housing industry, I believe cutting the land offering cycle and making it short from raw land to a developed housing community will remove a large amount of price inflation. Government contribution to infrastructure development will also play an important role in decreasing the land cost and increasing the supply,” he said l
ith a rapidly growing population and an acute land shortage, the Kingdom’s housing and land prices are rising drastically (as much as 10 per cent annually according
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