Saudi Arabia’s property market faces a “watershed” year, according to JLL.
The introduction of the new white land tax and the drive to create more affordable housing will be key drivers for the market said Craig Plumb, the regional head of research.
“We predict there will be increased activity in the real estate sector through the public investment fund, the listing of further Reits [real estate investment trusts], taxation reforms and a series of public-private partnerships,” Mr Plumb said.
The white land tax is a levy on undeveloped land. It is being rolled out in three of the kingdom’s biggest cities: Riyadh, Jeddah and Dammam.
“That’s going to have quite a major impact on the market,” Mr Plumb said. “Some owners are going to seek to redevelop their land to avoid paying tax on it. “What that is going to do is encourage the supply of new properties. This policy is being aimed largely at increasing the supply of affordable housing.”
Under Saudi Arabia’s National Transformation Plan, the kingdom is looking to double the contribution that property makes to its GDP to 10 per cent by 2020. It is also seeking to treble the percentage of residential units developed by “approved real estate developers” to 30 per cent.
“Perhaps the biggest opportunity in the Saudi market is in respect of affordable housing,” Mr Plumb said. “The government is recognising that, it is trying to encourage more development of affordable housing across all parts of Saudi. That’s going to have major implications for developers, investors and operators.”
JLL also published its Jeddah Real Estate Market Overview, which found that the general weakness in the Saudi economy, because of government cutbacks following the declining oil price, is also affecting all aspects of the city’s property market.
Housing rents fell by 9 per cent quarter-on-quarter and 8.5 per cent year-on-year. In the commercial sector, 23,000 square metres of new space came on to the market, contributing to growing vacancy rates because of weak demand.
Speaking on a conference call to investors last month, Fawwaz Al Khodari, the head of Dammam-based contracting company Al Khodari Sons, said that the white land tax has “triggered development on a lot of plots that would have otherwise been sitting there for decades doing nothing”.
“This naturally is beginning to create activity, which obviously is positive for a contracting company like ours,” he said.
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