• So-called 'white land' tax proceeds set aside for new housing
  • Kingdom faces shortage estimated at 1.5 million homes

Saudi Arabia’s cabinet approved a landmark tax on undeveloped urban land to encourage the development of empty real estate and address a housing shortage.

The regulation mandates an annual tax of 2.5 percent "on all empty land dedicated for residential or commercial-residential use inside the urban boundaries," according to a cabinet statement published on the official Saudi Press Agency Monday. The tax will be applied gradually "and with the necessary controls to ensure the fair application of the fine and prohibit evading payment," it said.

The law, approved last week by the Shoura Council, an advisory body, is an attempt to address a shortage of housing by taxing so-called "white land," or urban plots that lie empty because their owners have no incentive to build on them. Pushing owners to build or sell the land may enable the government to avoid expensive construction in the desert as it seeks to address a shortage estimated at 1.5 million affordable homes.

"This is a significant step,” Nick Maclean, CBRE Group Inc.’s managing director for the Middle East region, said by phone. "Perhaps this will be a wake-up call for some of the land holders that if this doesn’t work, the government may be prepared to take other steps to ensure that development does happen, particularly within strategic locations.”

The tax and any fines for violators will be collected in a special account with the Saudi Arabian Monetary Agency, the central bank, with the proceeds to be spent on housing projects, according to the statement.

Regulations outlining how the law will be implemented will be finalized by the housing ministry within 180 days, according to the statement.

“The speed at which this has been approved shows the new leadership is willing to be dynamic and isn’t afraid of making decisions,” Maclean said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE