On Friday, King Salman bin Abdulaziz issued a royal order exempting real estate transactions from the 15 percent value-added tax and imposing a new 5 percent tax on real estate transactions, as the Gulf state moves to revitalize the economy affected by the drop in oil prices and the Covid-19 pandemic.
According to the Saudi Press Agency (SPA), according to the order, a tax in the name of real estate disposal tax was imposed on real estate imports, whereby the Minister of Finance and Chairman of the General Authority for Zakat and Income determines real estate imports that are exempt from value-added tax and are subject to real estate disposal tax.
“The order, which was published through government media, aims to help stimulate economic growth and provide support to Saudi citizens,” Saudi Finance Minister Mohammed Al-Jadaan said on Twitter.
The state bears the tax of real estate disposals of the first residence for no more than one million riyals from the home purchase price, for all citizens wishing to own their first home.
Saudi Arabia, the world’s largest oil exporter, is facing a major recession, with the economy shrinking 7 percent in the second quarter of this year and unemployment rising to a record 14.5 percent.
Last July, the government tripled the value-added tax at 15 percent to support non-oil revenues, but the move curbed domestic demand.
Finance Minister Muhammad Al-Jadaan said on Twitter that the royal decree “aims to support the nation’s sons and daughters, relieve them and enable them to own their homes, and also contribute to the development of the Kingdom’s economy by stimulating the residential and commercial real estate sector.”
Saudi Crown Prince Mohammed bin Salman, the de-facto ruler of the country, launched an ambitious plan to diversify the economy and create millions of jobs for Saudis. The government says it is committed to the plan, but the programs will undergo “structural improvements” and be re-prioritized to stimulate growth.
The royal order said that the government will bear the cost of real estate tax “for no more than an amount of one million riyals from the purchase price of the first home for a citizen.”
The Minister of Housing said the move would contribute to achieving the goal of boosting Saudi home ownership to 70 percent by 2030 in a country with a predominantly young population.
Saudi Arabia plans to cut spending by about 7.5 percent in next year’s budget, according to a preliminary budget statement that expects a budget deficit of 12 percent in 2020 and 5.1 percent next year.
For his part, Minister Majid Al-Hogail said, on his Twitter account, that the state bears the real estate tax of up to one million riyals for the first housing, which will raise the percentage of Saudi family ownership to 70 percent by 2030, according to the Saudi newspaper, “Ajel”.
Saudi Arabia turned its attention to the real estate sector after the collapse of oil prices and the Corona crisis, with the aim of attracting investors, which could reduce the cost of housing, which is a trend at the core of the reform plan led by Crown Prince Mohammed bin Salman.
The government-run Saudi Real Estate Refinance Company agreed in July to purchase a real estate portfolio worth more than 3 billion Saudi riyals ($ 780 million), as part of the “Masaken” program. It is an initiative sponsored by the Public Pension Agency to provide financing solutions in the form of murabahah, at a fixed cost, to employees and retirees from the public and private sectors, with the aim of encouraging them to own property.
The Saudi Real Estate Refinance Company remains fully owned by the Public Investment Fund in the Kingdom, under the rule of Crown Prince Mohammed bin Salman. Raising the percentage of household ownership of homes from 50 to 70 percent by 2030, by at least 20 percent, is one of the goals of the 2030 Vision 2030 project to reform the economy and reshape Saudi society.
Experts believe that the royal order reflects the government’s keenness to serve housing plans, which are at the heart of programs to change the Saudi society and stimulate the economy.
Riyadh seeks to reduce its dependence on oil, which is witnessing fluctuations, shocks and other climate-related challenges, as well as the Corona epidemic that impeded supplies, prompting it to the real estate sector to improve its contributions to development.
The urgent need to reduce the cost of housing is pressuring the government as it fights the economic impact of lower oil prices due to the Corona epidemic.
Saudi Arabia has been trying for years to address the problems of ownership of citizens, as it seeks to convince citizens that economic reforms will benefit everyone, at a time when it is estimated that about 1.2 million Saudis are unable to own a home with their own potential.
Population growth increases the country’s problems, as the population has increased by 44 percent since 2004, to nearly 33 million people now, including about 11 million foreign residents, at a time when cities, especially Riyadh, are growing at a rapid pace.
A waiting list at the Real Estate Development Fund includes the names of about 500,000 Saudis at the beginning of last year.
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