Fees for vacant properties in Saudi Arabia: A new regulation to increase the housing supply
New regulations for fees on vacant properties in Saudi Arabia
The Saudi Ministry of Municipal and Rural Affairs and Housing has unveiled new regulations for imposing fees on undeveloped land and vacant properties, a strategic move aimed at addressing real estate market challenges and increasing the supply of residential and commercial units. The regulations specify precise mechanisms for assessing the fees and the conditions for their application, including linking them to consumption rates of essential services such as electricity and water.
Under the new regulations, a technical committee will be formed by a decision of the Minister of Municipal and Rural Affairs and Housing. This committee will be responsible for assessing the "fair market rent" and the value of buildings subject to the fee. The committee will include at least three experts in real estate appraisal, including appraisers accredited by the Saudi Authority for Accredited Valuers, to ensure the accuracy and transparency of the appraisal process.
General context and historical background of the decision
This decision comes as part of the Saudi government's ongoing efforts to achieve the goals of Vision 2030, specifically the housing program aimed at increasing homeownership rates among citizens. This regulation is an extension and development of the vacant land tax system, which was implemented in 2016 and targeted undeveloped land within the urban boundaries of major cities. Policymakers have observed that the challenge extends beyond undeveloped land to include built properties ready for occupancy but remaining vacant for investment or speculative purposes, thus reducing the actual supply in the market and contributing to price increases.
The importance of the decision and its expected impact on the real estate market
This regulation is expected to have tangible positive effects on both the local and economic levels. Locally, the implementation of the fees is anticipated to incentivize owners of vacant properties to put their units on the market, either for sale or rent, to avoid paying the annual fees. This will increase the supply of residential and commercial properties, potentially contributing to price stability and making them more affordable for a wider segment of citizens and investors. The decision also aims to curb monopolistic practices and speculation in the real estate sector, and to encourage investment in real estate development rather than the freezing of assets.
Standards and mechanisms for applying fees
The regulations stipulate that the application of fees will be contingent upon meeting specific criteria, including a high vacancy rate in a given geographic area, high housing costs relative to average household income, and a single individual owning a large number of vacant properties. To prevent fictitious occupancy, proof of occupancy will be linked to service consumption rates, with a minimum consumption threshold to be met. The Ministry will monitor these criteria for a minimum of 12 months before implementing the fees in any city or geographic area, with an annual review to assess the continued need for their application.
The regulation also stipulated that the minister would issue a decision specifying the geographical areas subject to the fee, the annual fee rate, the types of properties targeted, and the minimum number of vacant properties owned by one person that are subject to application, thus providing flexibility in implementation according to the circumstances of each city.
