KSA Land Tax An Initiative Towards Market Correction Research & Advisory Department
2 Land Tax on Unused Urban Land in KSA Land Tax on Unused Urban Land in KSA The Concept & Idea Property Taxes in KSA The Unused Urban Land or a.k.a the White Land is a key driving force in meeting the growing housing demand in Kingdom of Saudi Arabia. In other words, these big land parcels can be used in order to meet the housing shortages for around 2 million Saudi nationals, who are currently residing in rented accommodation. There are no property taxes in Saudi Arabia However based on the official Saudi Press Agency (SPA), the Shura Council agreed to impose an annual fee on white lands. The Council agreed that Ministry of Municipal and Rural Affairs will be in charge to issue the implementing regulations to control and organise the necessary mechanism to impose annual fees on such land that is located within the white urban scale. Background story At the end of last Year, The International Monetary Fund (IMF) advised Saudi Arabia to implement a tax on vacant lands as a way to increase non-oil revenues. March 23, 215 - a plan approved by Government of KSA to impose a tax on undeveloped land in urban areas Proposal submitted by: Newly formed Council for Economic and Development Affairs. Rate for the tax and the time frame for implementation not decided.
3 Land Tax on Unused Urban Land in KSA Why there is a need for such a Tax? Fewer players trying to manipulate the KSA Land market i.e. vast areas of prime real estate being stockpiled by wealthy individuals and companies with no intention of developing the land but simply holding onto the land as a store of value and/or aiming to resell it at a profit. High demand for affordable housing is on the rise in KSA as about 2 million citizens do not own their own homes, a high ratio for a rich country. Rising rents make it hard for even the middle class to afford housing; many Saudis do not meet qualifications for housing loans from banks. The New Mortgage law needs a strong push as this new Land tax regime will help to implement it in a better way both for the policy makers and financial institutions. Who are the Key Stakeholders? Land Owners/Investors Land Appraisers/Chartered Surveyors Buyers of property Saudi Government Real Estate Developers/Consultants Banks and financial Institutions Construction companies Revenue/Tax collectors Policy Makers Accountants
4 Land Tax on Unused Urban Land in KSA How this Tax will Impact? Positive Impacts: The introduction of such a tax will make the land trading market more regulated as sellers won t be able to hold the land for a longer as they will be subject to tax. More supply of land in the market is most likely to impact the land prices and will trigger them down. The affordable housing project in the KSA market will get a big push in two ways: 1- Firstly, more supply of Land in the market to build housing units. 2- Secondly, cost of land is a major constraint in any construction project.hence as a result of land tax the land price is more likely to move downward. This will also help to develop a more active real estate market in KSA as key property developers will actively get involve in starting new projects and hence increasing the overall real estate transactions by value and numbers. The new Tax will force the land owners to sell their respective land and this will increase the overall supply of land in the KSA market. The Demand & Supply will be narrowed down as increased supply will help to boost the current housing projects in pipeline and will provide room for new ones. This will help to boost the new mortgage law being implemented as Banks will target the land owners and use their land as 3% equity to finance their mortgage. This will positively impact the banks business.
5 Land Tax on Unused Urban Land in KSA Key Questions that need to be addressed 1. How would you classify an unused land? What are the criteria? 2. Should all unused lands be taxed as the same under the land tax regime? 3. Will there be minimum value criteria from which the tax would start to apply. Exempt value (if any) Taxable value 4. Will there be a time limit that will apply before tax is levied on the land owner? 5. What tax rates to apply? 6. Will there be a separate taxation criteria for individuals and companies. For example: The tax rates Period of ownership Minimum value Maximum value 7. Whether it will be fair just to tax the owner of the land and not the buyer?
6 Land Tax on Unused Urban Land in KSA Corporations Countries Real Property Tax Stamp Duty Transfer Tax Other Bahrain Overview of Property Tax Regimes in GCC Countries Stamp duty is levied on property transfers on the basis of the value of the property as follows: 1.5% up to BHD; 7,; 2% from BHD 7,1 to BHD 12,; and 3% for amounts exceeding BHD 12,1. Kuwait Oman Qatar UAE A transfer charge is levied on the transfer of real property. The rate varies according to the local jurisdiction. Municipal taxes are imposed on certain hotel and leisure services and property rentals. Annual rental income of residential &Commercial tenants is taxed at 5% and 1%, respectively. Saudi Arabia Individual Countries Real Property Tax Stamp Duty Transfer Tax Other Bahrain Stamp duty is levied on property transfers on the basis of the value of the property as follows: 1.5% up to BHD; 7,; 2% from BHD 7,1 to BHD 12,; and 3% for amounts exceeding BHD 12,1. Kuwait Oman Stamp duty applies only to the acquisition of real estate at the rate of 3% of the sales value. Qatar UAE A transfer charge is levied on the transfer of real property. The rate varies according to the local jurisdiction. Saudi Arabia We did not find any direct evidence of direct property taxes and or land taxes in the GCC countries. The only type of taxes that are being imposed by the respective governments are on buying and selling of property.
7 Land Tax on Unused Urban Land in KSA CASE STUDY - Land Tax However, based on our further research and investigtion we managed to find a direct evidence of land tax in Australia. The Oceanian country comprises of six states namely: New South Wales (NSW), Queensland (QLD), South Australia (SA), Tasmania (TAS), Victoria(VIC) and Western Australia (WA) and two major mainland territories the Australian Capital Territory (ACT) and the rthern Territory (NT). Each of the afore-mentioned states and territories has a proper system of tax of its own. Land taxes and frequency of payment are determined by local councils. Each council has land valuers who value the land s worth. The land s worth is the value of the land only; it does not include existing dwellings on the property. The assessed value of the land determines the total charges of rates. In this article we will discuss the Land tax system prevailing in Queensland, Australia. Queensland, Australia Land tax is a state tax, calculated on the freehold land you own in Queensland at midnight on 3 June each year. For example, the land tax liability for the 213 14 financial year was calculated on 3 June 213. The tax rate that applies depends on What type of owner you are The total taxable value of your land, and if any exemptions apply Land Categories: Land in Queensland is categorised as freehold, leasehold or state-owned. Land tax is a tax on freehold land, which includes: vacant land land that is built on lots in building unit plans lots in group title plans lots in a timeshare scheme lots owned by a home unit company Shared ownership of land: If you own land jointly with other people, the taxable value of the land will be based on your respective shares. They will then add this to the value of all other land that you own to determine the total taxable value. Assessment of Land Tax: Land tax is assessed (or calculated) on the total taxable value of an owner s Queensland freehold land. They will add up the taxable value of all land that you own in Queensland at 3 June, excluding land on which you have received an exemption. Different rates apply depending on this total value and what type of owner you are. You are liable when the total taxable value of your land is: $35, or more - for companies, trustees or absentees. $6, or more - for individuals. Reassessments of your land tax can happen when certain events occur, which may increase or decrease your liability.
8 Land Tax on Unused Urban Land in KSA Land Tax Rates Individual An individual (a person who usually resides in Australia) is liable for land tax if the total taxable value of their land is $6, or more. If you don t reside in Australia, the company, trustee and absentee land tax rates will apply. Taxable value Rate of tax $ $599,999 $ $6, $999,999 $5 plus 1 cent for each $ more than $6, $1,, $2,999,999 $4,5 plus 1.65 cents for each $ more than $1,, $3,, $4,999,999 $37,5 plus 1.25 cents for each $ more than $3,, $5,, and over $62,5 plus 1.75 cents for each $ more than $5,, Example Total taxable value of $68, Tax band is $6, $999,999. Tax calculation = $5 + (1 cent $8, excess) = $5 + $8 Tax payable = $1,3 Companies, Trustees, and Absentees A company, trust or absentee (a person who does not ordinarily reside in Australia) is liable for land tax if the total taxable value of their land is $35, or more. If you don t reside in Australia, the company, trustee and absentee land tax rates will apply. Taxable value Rate of tax $ $599,999 $ $6, $999,999 $5 plus 1 cent for each $ more than $6, $1,, $2,999,999 $4,5 plus 1.65 cents for each $ more than $1,, $3,, $4,999,999 $37,5 plus 1.25 cents for each $ more than $3,, $5,, and over $62,5 plus 1.75 cents for each $ more than $5,, Example Total taxable value of $68, Tax band is $35, $2,249,999. Tax calculation = $1,45 + (1.7 cents $33, excess) = $1,45 + $5,61 Tax payable = $7,6 ***(Source: Office of State Revenue, Queensland Government website: https://www.osr.qld.gov.au) (Disclaimer: The below information has been extracted from the Office of State Revenue, Queensland Government website: https://www.osr.qld.gov.au. The below information has only been used for illustration purposes. This Information mentioned below is by no means the opinion of Century21 Saudi or its employees. This article should not be used for making any kind of investment decisions. Century21 Saudi does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on the infromation. Thank you).
9 Land Tax on Unused Urban Land in KSA Residential Lands Stats (Q1 215) Taxable value Riyadh Jeddah Madinah Makkah Dammam/Khobar Number of Transactions 1,567 5,637 2,357 3,26 2,86 Total Value of Transactions (SR) 1,861,83,93 8,855,33,436 3,44,988,588 11,598,547,159 4,365,82,624 Total Transacted Area (sqm) 31,53,956 5,544,3 7,56,59 1,828,544 3,241,15 Residential Lands - Total. of Transactions vs Total Value of Transactions (SR) (Q1-215) Residential Lands - Total Value of Transactions (SR) vs Total Transacted Area (Sqm) (Q1-215) 11, 12,,, 12,,, 4,, Total. of Transactions 8,25 5,5 2,75 9,,, 6,,, 3,,, Total Value (SR) Total Value (SR) 9,,, 6,,, 3,,, 3,, 2,, 1,, Total Area (Sqm) Riyadh Jeddah Madinah Makkah Dammam/Khobar Riyadh Jeddah Madinah Makkah Dammam/Khobar Number of Transactions Total Value of Transactions (SR) Total Value of Transactions (SR) Total Transacted Area (sqm) Commercial Lands Stats (Q1 215) Taxable value Riyadh Jeddah Madinah Makkah Dammam/Khobar Number of Transactions 1,262 671 398 367 467 Total Value of Transactions (SR) 12,24,628,11 3,522,46,42 1,492,713,77 1,453,12,6 3,168,333,988 Total Transacted Area (sqm) 11,647,696 3,881,119 523,76 323,75 3,13,399 1,3 Commercial Lands - Total. of Transactions vs Total Value of Transactions (SR) (Q1-215) 14,,, 14,,, Commercial Lands - Total Value of Transactions (SR) vs Total Transacted Area (Sqm) (Q1-215) 12,, Total. of Transactions 975 65 325 1,5,, 7,,, 3,5,, Total Value (SR) Total Value (SR) 1,5,, 7,,, 3,5,, 9,, 6,, 3,, Total Area (Sqm) Riyadh Jeddah Madinah Makkah Dammam/Khobar Riyadh Jeddah Madinah Makkah Dammam/Khobar Number of Transactions Total Value of Transactions (SR) Total Value of Transactions (SR) Total Transacted Area (sqm)
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