Fees for vacant properties in Saudi Arabia: Details of the decision and its objectives

In a new regulatory step aimed at enhancing the efficiency and sustainability of the real estate sector, the Ministry of Municipal and Rural Affairs and Housing in the Kingdom of Saudi Arabia announced the adoption of the executive regulations for fees on vacant properties. This important decision comes as an extension of the directives of His Royal Highness Prince Mohammed bin Salman bin Abdulaziz, Crown Prince and Prime Minister, aimed at achieving a sustainable balance in the real estate market and addressing the challenges facing the housing sector.

The context of the decision is within the framework of the Kingdom's Vision 2030

This legislation falls within the broader framework of structural reforms underway in the Kingdom as part of Vision 2030, of which the Housing Program is a key pillar. The program aims to increase homeownership rates among citizens and provide diverse and affordable housing solutions. The phenomenon of vacant properties, both residential and commercial, is a significant obstacle that limits the supply of real estate and contributes to unjustified price increases. This decision complements previous efforts, most notably the "White Land Tax" system implemented in 2016, which targeted undeveloped land within urban boundaries. This system successfully incentivized development and increased the supply of residential land. Now, attention is turning to existing but underutilized properties to ensure their entry into the market and meet growing demand.

Objectives of the regulations and their expected impact

The ministry explained that the regulation primarily aims to improve the efficiency of utilizing existing real estate assets and incentivize owners of vacant properties to utilize them, whether through leasing or selling, thus directly increasing the real estate supply in the market. This decision is expected to have multiple positive economic and social impacts

• Balancing supply and demand: By injecting more real estate units into the market, the fees will help bridge the gap between supply and demand, which may lead to stable or lower rental and sales prices in the medium and long term.
• Combating monopolistic practices: Fees reduce the feasibility of holding real estate as frozen assets for speculative purposes, and encourage its productive investment that serves the economy and society.
• Stimulating related sectors: Employing vacant properties will revitalize other sectors such as maintenance services, property management, and furnishing, creating new job opportunities and supporting economic growth.

Application mechanism and fee details

According to the approved regulations, fees will be applied to vacant buildings located within the designated urban area that remain unoccupied for more than six months during the reference year, whether this period is continuous or intermittent. The fee rate will be determined annually based on the property's "comparable rent," not exceeding 5% of the building's total value. The Ministry confirmed that it will announce the cities and geographical areas covered by the application gradually, based on precise indicators including vacancy rates, price levels, and supply and demand in each region, to ensure the decision's objectives are achieved in the best possible way.