A Step Closer: How Saudi Arabia is addressing real estate speculation
In August 2024, I wrote about the potential to use Saudi Arabia’s tax system as an economic steering wheel rather than just a revenue generation instrument. My article explored how tax policies could actively shape the economy by making productive sectors like tech more attractive through lower tax rates while simultaneously increasing levies on less productive sectors like real estate. The core idea was simple: use taxation to nudge capital toward sectors that create jobs and innovation.
This week, the Ministry of Municipal and Rural Affairs & Housing announced a move closer to this direction by introducing a dynamic formula that starts with the 2.5% base, but that adds annual tax increases and market-adjusted variables.
According to the ministry, the policy is aimed at addressing “احتكار الأراضي البيضاء” (white land monopolization) for properties over 5,000m², which touches on the same speculation concerns I wrote about. With this progressive mechanism, areas that experience heavy speculation could see effective tax rates reach higher levels as annual levy increases compound over time.
I think what makes this tax policy proposal particularly promising is its flexibility. Rates can vary and adjust based on market conditions and monopolization indicators, which creates a system that responds to real estate dynamics rather than one that applies rigid rules. In fact, if implemented in its current design, this would make Saudi Arabia as having the most progressive land tax system in the MENA region.
As these reforms develop, there’s an opportunity to complement higher land taxes with reduced VAT for productive sectors like tech that create skilled and high-paying jobs. This combination could help advance a tax system that encourages productive investment while it addresses speculation.