The recent royal decree issued by the Custodian of the Two Holy Mosques—may God preserve him—was nothing less than a reaffirmation of the wise leadership’s commitment to harnessing all means that serve the public interest of the nation and its citizens, The royal decree, consisting of ten main points, came as a result of the leadership’s monitoring of the economic impact of the real estate value-added tax and its effect on citizens" lives and their ability to purchase their first home, in order to achieve the goals of the Kingdom’s Vision 2030.
Perhaps the primary objective behind the introduction of the value-added tax is to increase the state’s general revenues and boost non-oil revenues, thereby enabling the economy to withstand fluctuations in global prices—particularly in the oil sector—so that market balance can be achieved by maintaining economic objectives and diversifying sources of income in accordance with the Kingdom’s Vision 2030.
Real estate is subject to supply and demand
We cannot underestimate or ignore the fact that the COVID-19 crisis has directly affected all aspects of life, including the economy, given that life has come to a standstill—and even been paralyzed—due to the precautionary measures recommended by the World Health Organization to all countries. Perhaps the positive effects of this tax were the most effective factor in mitigating the severity of this economic pandemic, especially given the decline in oil prices to historic lows, which enabled the government to make acceptable adjustments that helped overcome the economic impacts of the pandemic. Perhaps the royal decree toto 5% and the increase in the state’s subsidy for the first-home tax up to one million riyals will boost demand for real estate units, particularly residential ones, as housing is a strategic objective within the Kingdom’s Vision 2030. This royal decree serves as an incentive foraggregate demand on the one hand, and on the other, it encourages investment in the real estate sector, which is considered one of the most important global economic sectors.
Real Estate Transaction Tax Hits Record Levels
The volume of Supply and demand in the real estate sector will resume growth, as the minimum threshold of 375,000, which was previously in effect, no longer applies; instead, real estate transaction tax 5% will be imposed on any real estate transaction, regardless of price, instead of the previous 15%. The General Authority for Zakat and Income has clarified that the number of sales applications registered in the Real Estate Transaction Tax service over the past few days has reached a recordof 8,286 applications nationwide, which is a positive indicator that the real estate market is on the rise again.
10% reduction in property value
Compared to the previous tax regime, a 10% decrease in the market value of real estate is expected in the near future, particularly for residential properties—whether standalone units or apartments—provided that some sellers avoid escalating and inflating property values by some sellers.
Stimulating the Real Estate Market and the Ministry of Housing
The Ministry of Housing’s various programs aim to meet citizens’ needs by achieving the Kingdom’s Vision goal of raising the homeownership rate among Saudi families to 70% by 2030, This decision, whereby the state will cover the tax up to one million riyals for the first home, serves as an incentive to encourage citizens to participate in the programs of the Ministry of Housing and the Real Estate Fund, on the one hand, and, on the other hand, in turn incentivizes real estate development companies to build residential units that comply with the Ministry’s requirements On the other hand, economic experts generally expect that the recovery period from the economic contraction and recession caused by the pandemic will range from two to five years, particularly for the real estate sector, which is considered one of the hardest-hit sectors globally; However, these generous royal decrees are expected to significantly shorten the duration of the pandemic’s impact, and this is what we will see in the coming months, God willing.
