Why property will be key for Saudi Arabia
Diversifying the Saudi Arabian economy has been on the Kingdom’s agenda for a while and when it outlined plans earlier this year, property was marked out as a major area for growth.
The National Transformation Plan identifies the property sector as a key player in reducing Saudi Arabia’s dependence on oil, with both the public and private sector encouraged to take a role in ensuring the growth of the property sector through a number of initiatives. These are:
- Introducing a real estate investment trust. This is likely to institutionalise the real estate market and attract foreign investments into commercial property such as office buildings, retail centres and hotels. In turn, this will provide diversity, long term growth and stability.
- Levying a white land tax on undeveloped land. An annual 2.5 percent tax on the land value of undeveloped plots of 10,000 sq m aims at encouraging land owners to develop more homes to the market to tackle the current shortage of housing.
- Developing a home-building programme. The Ministry of Housing announced plans to create its own property company and offer a mortgage guarantee fund to boost the rate of lending.
Stefan Burch, Head of Knight Frank KSA, believes these plans will indeed help boost the real estate sector in Saudi Arabia. He commented: “Over the medium-to-long term these development strategies are expected to transform cities for the better, improving the quality of life while maintaining affordability and safety of the local communities. In the short run, the approval of a white land tax on undeveloped land is expected to see land owners review their holdings and portfolios in order to be well positioned in light of the proposed tax. Meanwhile, others might seek to sell their sites which should help reduce land values and consequently make development more feasible. This in turn is likely to increase development activity across the Kingdom.”