The real estate market is currently experiencing a troubling slump due to the reluctance of many owners for sale for various reasons related to the market or their own economic outlook, exposing them to certain losses that may be tangible or intangible to them.
In terms of calculations and figures: If an owner has land with a market value of 100 million riyals and the market interest rate is 5%, and the owner does not sell or invest it, they will lose expected annual profits (as an opportunity cost) amounting to (5 million riyals), meaning that over five years, his loss would be (25 million), and this pattern applies to non-income-generating real estate as well, so the model above also yields zakat at a rate of 2.5% (2.5 million riyals annually), and the zakat for five years amounts to (10 million riyals), with the total loss over these five years being 35 million riyals.
This is the economic situation of frozen land prior to the implementation of the vacant land tax system, the imminent implementation of which has been announced. If implemented, its impact will be significant and painful, increasing losses; therefore, disposing of or investing in this land would be a gain for everyone, including citizens seeking affordable housing and within their means.
In our estimation, several factors have contributed to the stagnation of the real estate market, the most significant of which is the decline in overall income, which has had the most profound impact on demand for real estate and market activity in general The emergence and development of online sales technologies have also contributed to limiting returns on real estate purchases, both currently and in the future. This is in addition to the general atmosphere of uncertainty and wait-and-see attitude that shrouds the real estate market in ambiguity.
Therefore, property owners must be mindful of these losses and avoid them by acting quickly to list properties for sale and invest in forming strong alliances with real estate developers to bring these lands into the urban development sphere, thereby creating an additional source of income, or by contributing the frozen property to large development companies, with the owner being compensated with shares. These proposed solutions are in line with the current economic situation, which promotes a culture of «income diversification» as a natural outcome of the National Transformation Policy and Program, which begins with the individual and extends to society as a whole, collectively forming the state’s diverse sources of income.
Out of self-honesty, these losses must be acknowledged so they can be addressed, benefiting the owner first and society second; and it is essential to seek alternative opportunities that yield direct profit to mobilize fixed assets or a portion thereof to minimize losses and seek other assets that generate better returns, for it has been said
«Cutting your losses is a gain.» Especially when near-term indicators do not bode well for growth.
* Editor-in-Chief
