Saudi's Dar Al Arkan Says Land Tax Unlikely To Hurt Business
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Saudi’s Dar Al Arkan Says Land Tax Unlikely To Hurt Business

Saudi’s Dar Al Arkan Says Land Tax Unlikely To Hurt Business

Dar Al Arkan chairman Yousef al-Shelash said that he did not expect the tax to be applied to this land, since the company was in the process of developing it.

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Dar Al Arkan Real Estate Development Co, one of Saudi Arabia’s largest listed property firms, said a planned tax on undeveloped land was unlikely to be applied to its huge land bank or push the kingdom’s land prices down sharply.

The cabinet’s announcement of the tax, designed to deter hoarding of land and force more of it into the market where it can be used to resolve a housing shortage, shook up the Saudi stock market on Tuesday.

Shares in construction and building supplies firms jumped on hopes of an increase in home building, while shares in real estate developers sank as investors feared their land banks would be taxed. Dar Al Arkan tumbled 6.5 percent.

The company’s land bank, which it valued at SAR14.5 billion ($3.9 billion) at the end of 2014, totals almost 40 million square metres concentrated in Saudi Arabia’s major cities; 60 per cent is in Jeddah, 12 per cent in Riyadh, 21 per cent in Mecca and seven per cent in Medina and Eastern Province.

But Dar Al Arkan chairman Yousef al-Shelash told Reuters that he did not expect the tax to be applied to this land, since the company was in the process of developing it and the government was targeting “white” or totally undeveloped land.

“DAAR welcomes all initiatives by the administration to improve the housing solutions and facilitate a faster development process, and we are working with the municipalities for master plans and zoning approvals for our land, and we are collaborating with utilities companies to provide services for these lands,” he said by email on Wednesday.

“Therefore, taxation on these lands would be unlikely, as it applies to white lands.”

The cabinet gave no details of the likely size of the tax, how it would be implemented, or a timetable for introducing it. An economic council will make proposals to the Shura Council, a top advisory body.

PROJECTS

Dar al Arkan’s projects mainly focus on development of basic infrastructure on undeveloped land and the sale of such land. According to its latest financial report, its revenue from land sales was SAR2.9 billion in 2014, out of total revenue of SAR3.1 billion.

To insulate itself from the volatility of the Saudi land market, the company has launched a diversification plan which envisages obtaining only 50 per cent of its revenue from selling land and housing units. Forty per cent is to come from leasing housing and commercial units, and 10 per cent from investment in equities and bank deposits, by around 2019.

Shelash said he did not expect the new tax to cause a sharp fall in Saudi land prices, predicting only a moderate change. He noted that government officials had been discussing the idea since mid-2014.

“The impact has been largely discounted in the market already,” he said, adding that in the past two quarters, land prices had stopped increasing and transactions had declined.

In a step to address the housing shortage, the government in 2011 allowed “off-plan” sales of housing units – those which are still in the process of being built. But the regulations include time-consuming requirements for developers, including a licence for each off-plan development.

Shelash said that if the government followed the land tax with measures to make off-plan housing sales easier, his company would step up its home building.

“The purpose of this new law is to facilitate faster housing development, and we are hoping that on top of the new mortgage law, there would be additional measures to facilitate the off-plan selling,” he said.

“This would prompt us to be in a position to change our strategy to massively increase our production of housing units.”


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