An Initiative Towards Market Correction

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
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 20 million Saudi nationals,
who are currently residing in rented
accommodation.
Property Taxes in KSA
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, 2015 - 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 20 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
• The new Tax will force the land owners to sell
• The Demand & Supply will be narrowed down
• This will help to boost the new mortgage law
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.
as increased supply will help to boost the current
housing projects in pipeline and will provide room
for new ones.
their respective land and this will increase the
overall supply of land in the KSA market.
being implemented as Banks will target the
land owners and use their land as 30% 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
Overview of Property Tax Regimes in GCC Countries
Corporations
Countries
Real Property Tax
Stamp Duty
Transfer Tax
Other
Bahrain
No
Stamp duty is levied on
property transfers on the
basis of the value of the
property as follows: 1.5% up
to BHD; 70,000; 2% from
BHD 70,001 to BHD 120,000;
and 3% for amounts
exceeding BHD 120,001.
No
No
Kuwait
No
No
No
No
Oman
No
No
No
No
Qatar
No
No
No
No
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 10%, respectively.
UAE
No
No
A transfer charge is levied
on the transfer of real
property. The rate varies
according to the local
jurisdiction.
Saudi Arabia
No
No
No
No
Countries
Real Property Tax
Stamp Duty
Transfer Tax
Other
Bahrain
No
Stamp duty is levied on
property transfers on the
basis of the value of the
property as follows: 1.5% up
to BHD; 70,000; 2% from
BHD 70,001 to BHD 120,000;
and 3% for amounts
exceeding BHD 120,001.
No
No
Kuwait
No
No
No
No
Oman
No
Stamp duty applies only
to the acquisition of real
estate at the rate of 3% of
the sales value.
No
No
Qatar
No
No
No
No
No
No
Individual
UAE
No
No
A transfer charge is levied
on the transfer of real
property. The rate varies
according to the local
jurisdiction.
Saudi Arabia
No
No
No
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 Northern 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 30
June each year. For example, the land tax liability
for the 2013–14 financial year was calculated on
30 June 2013.
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 30 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:
•
$350,000 or more - for companies, trustees or
absentees.
$600,000
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 $600,000 or more.
If you don’t reside in Australia, the company, trustee and absentee land tax rates will apply.
Taxable value
Rate of tax
$0–$599,999
$0
$600,000–$999,999
$1,000,000–$2,999,999
$500 plus 1 cent for each $ more than $600,000
$4,500 plus 1.65 cents for each $ more than $1,000,000
$3,000,000–$4,999,999
$37,500 plus 1.25 cents for each $ more than $3,000,000
$5,000,000 and over
$62,500 plus 1.75 cents for each $ more than $5,000,000
Example
Total taxable value of $680,000
Tax band is $600,000–$999,999.
Tax calculation = $500 + (1 cent × $80,000 excess)
= $500 + $800
Tax payable = $1,300
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 $350,000 or more.
If you don’t reside in Australia, the company, trustee and absentee land tax rates will apply.
Taxable value
Rate of tax
$0–$599,999
$0
$600,000–$999,999
$500 plus 1 cent for each $ more than $600,000
$1,000,000–$2,999,999
$4,500 plus 1.65 cents for each $ more than $1,000,000
$3,000,000–$4,999,999
$37,500 plus 1.25 cents for each $ more than $3,000,000
$5,000,000 and over
$62,500 plus 1.75 cents for each $ more than $5,000,000
Example
Total taxable value of $680,000
Tax band is $350,000–$2,249,999.
Tax calculation = $1,450 + (1.7 cents × $330,000
excess)
= $1,450 + $5,610
Tax payable = $7,060
***(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 – 2015)
Riyadh
Jeddah
Madinah
Makkah
Dammam/Khobar
10,567
5,637
2,357
3,026
2,806
Number of Transactions
Total Value of Transactions (SR)
Total Transacted Area (sqm)
Number of Transac:ons
Total Value of Transac:ons (SR)
Total Transacted Area (sqm)
10,861,803,903 8,855,330,436 3,044,988,588
31,053,956
Riyadh
Jeddah
Madinah Makkah
Damman/Khobar 10,567
5,637
2,357
3,026
2,806
10,861,803,903
8,855,330,436
3,044,988,588
11,598,547,159
4,365,820,624
31,053,956
5,544,030
7,506,590
10,828,544
3,241,015
5,544,030
7,506,590
Number of Transac:ons
Total Value of Transac:ons (SR)
10,567
31,053,956
4,365,820,624
Madinah 10,828,544
Makkah
Damman/Khobar 3,241,015
5,637
2,357
3,026
2,806
8,855,330,436
3,044,988,588
11,598,547,159
4,365,820,624
5,544,030
7,506,590
10,828,544
3,241,015
Residential Lands - Total Value of Transactions (SR) vs Total
Transacted Area (Sqm) (Q1 - 2015)
11,000
12,000,000,000
12,000,000,000
40,000,000
8,250
9,000,000,000
9,000,000,000
30,000,000
5,500
6,000,000,000
6,000,000,000
20,000,000
2,750
3,000,000,000
3,000,000,000
10,000,000
0
0
0
Riyadh
Jeddah
Madinah
Number of Transactions
Makkah Dammam/Khobar
Total Value (SR)
Total Value (SR)
Total No. of Transactions
Jeddah
10,861,803,903
Total Transacted Area (sqm)
Residential Lands - Total No. of Transactions vs Total Value of
Transactions (SR) (Q1 - 2015)
11,598,547,159
Riyadh
Riyadh
Total Value of Transactions (SR)
Jeddah
Madinah
Total Value of Transactions (SR)
Total Area (Sqm)
Taxable value
0
Makkah Dammam/Khobar
Total Transacted Area (sqm)
Commercial Lands Stats (Q1 – 2015)
Taxable value
Riyadh
Number of Transactions
Riyadh
Number of Transac:ons
1,262
Jeddah
Madinah 671
398
Total Value of Transactions (SR)
Total Value of Transac:ons (SR)
Total Transacted Area (sqm)
1,262
Makkah
Jeddah
Madinah
Makkah
Dammam/Khobar
671
398
367
467
3,522,460,042
1,492,713,707
Damman/Khobar 367
467
12,024,628,101
12,024,628,101
3,522,460,042
1,492,713,707
1,453,102,060
3,168,333,988
11,647,696
3,881,119
523,760
323,750
3,130,399
Total Transacted Area (sqm)
11,647,696
3,881,119
523,760
Number of Transac:ons
Total Value of Transac:ons (SR)
Total Transacted Area (sqm)
Commercial Lands - Total No. of Transactions vs Total Value of
Transactions (SR) (Q1 - 2015)
Jeddah
Madinah 323,750
3,168,333,988
Makkah
Damman/Khobar 3,130,399
1,262
671
398
367
12,024,628,101
3,522,460,042
1,492,713,707
1,453,102,060
3,168,333,988
11,647,696
3,881,119
523,760
323,750
3,130,399
467
650
7,000,000,000
325
3,500,000,000
Riyadh
Jeddah
Number of Transactions
Madinah
Makkah Dammam/Khobar
Total Value of Transactions (SR)
0
14,000,000,000
12,000,000
10,500,000,000
9,000,000
7,000,000,000
6,000,000
3,500,000,000
3,000,000
0
Riyadh
Jeddah
Madinah
Total Value of Transactions (SR)
Makkah Dammam/Khobar
Total Transacted Area (sqm)
0
Total Area (Sqm)
10,500,000,000
Total Value (SR)
14,000,000,000
975
0
1,453,102,060
Commercial Lands - Total Value of Transactions (SR) vs Total
Transacted Area (Sqm) (Q1 - 2015)
Total Value (SR)
Total No. of Transactions
1,300
Riyadh
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In order to prepare this report, Century21 Saudi collected the data from outside sources as well as by survey of Century21 Saudi research team. Century21 Saudi is
confident about the reliability of published data. However, we do not guarantee the completeness and accuracy of the data.
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