Leading real estate investment and advisory firm JLL has welcomed the Saudi cabinet's approval for a number of regulations for the introduction of the "white land tax" in the kingdom.

The important features of these regulations include:

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

*The tax will be imposed on a phased basis on land which meets the following criteria (but no details of the timing of the four stages have yet been announced).

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

*At a second stage, single land owners of large plots of developed land (exceeding 10,000 sq m) in certified masterplanned developments will be taxed. The definition of ‘developed plots’ is again not included in this announcement but JLL assumes 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 land owners of smaller plots of developed land (exceeding 5,000 sq m) in the certified masterplanned developments will be subject to the tax.  

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

Also as per the new rules, the Ministry of Housing will be responsible for collecting the tax, in addition to any imposed fines on land owners 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.

Welcoming the cabinet decision, Jamil Ghaznawi, JLL country head for Saudi Arabia, said: "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."

While it is too early to say precisely how the market will react, JLL would expect the new law would result in the following:

*Some land owners will bring forward plans and begin development in order to avoid the additional tax burden of holding undeveloped land;

*Others will seek to sell sites to other developers which should help reduce land values, which have been soaring over the last few years amounting to 30 to 50 per cent of the cost of developing

According to Ghaznawi, the lower land values will make development more financially viable and therefore stimulate additional activity in the sector.
 
Also revenues from the tax 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, he added.-TradeArabia News Service