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 About Us About Century21® Century21® is one of the most recognized name in Real Estate Market with approximately 7,600 independently owned and operated franchised brokerage offices in 71 countries and territories worldwide and represented by more than 112,000 real estate experts. 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