Adoption of fees for vacant properties in Saudi Arabia: A step towards regulating the market
The Ministry of Municipal and Rural Affairs and Housing in the Kingdom of Saudi Arabia announced the adoption of the executive regulations for the vacant property fees system, a strategic step aimed at regulating the real estate sector and improving the efficiency of real estate asset utilization. This decision comes within a broader regulatory framework that seeks to enhance the balance between supply and demand in the market and address practices that negatively affect its stability, in line with the directives of Crown Prince Mohammed bin Salman aimed at developing the real estate sector to serve the goals of the Kingdom's Vision 2030.
General context and objectives of the decision
The approval of this regulation is the latest in a series of structural reforms underway in the Saudi economy, particularly in the real estate sector. Following the implementation of the vacant land tax, which targeted undeveloped land within city limits, attention is now turning to built but unused properties. This policy primarily aims to curb the practice of landlords holding residential and commercial properties vacant for speculative purposes or other reasons, a practice that creates an artificial shortage and drives up prices, both for rent and sale. By imposing fees, the government seeks to incentivize landlords to utilize their properties through rental or sale, thereby increasing the available supply in the market and meeting the growing demand for housing.
Details of the regulations and implementation mechanisms
The ministry clarified that the executive regulations precisely define the criteria for applying the fees. According to these regulations, a building is considered vacant if it has not been used or occupied for more than six months, whether consecutive or non-consecutive, during the reference year. The fees will be implemented gradually in phases, beginning in specific geographic areas to be announced by ministerial decree. The selection of these areas is based on precise market indicators and criteria, including vacancy rates, supply and demand levels, and average prices and housing costs.
The regulations stipulate that the annual fee will not exceed 5% of the building's rental value, which will be determined based on approved valuation criteria that take into account the average market and rental values of similar properties in the area. The regulations also address situations where the building cannot be occupied due to circumstances beyond the owner's control, and provide clear mechanisms for issuing invoices and granting a payment grace period of up to six months, while allowing taxpayers the right to appeal according to established procedures.
Expected impact on the market and society
This decision is expected to have multiple positive impacts on both the local and economic levels. Locally, the increased supply of residential and commercial units will lead to lower rental prices and make housing more affordable for citizens and residents. Economically, the decision will contribute to enhancing the dynamism of the real estate market, curbing monopolistic practices, and encouraging investment in real estate development rather than asset stagnation. Furthermore, the revenues collected from these fees will be allocated to support government housing projects, creating a sustainable economic cycle that supports comprehensive urban development and improves quality of life, in line with the ambitious goals of the Kingdom's Vision 2030.
