Saudi Arabia exempts property deals from VAT and imposes new 5% tax

Saudi Arabia on Friday issued an order exempting property deals from VAT and imposed a new 5 per cent tax on transactions.

The latest decision by the government is expected to boost the property sector in the kingdom and help citizens seeking to buy homes, according to a Saudi Press Agency report.

“The royal decree aims to support citizens and ease their burden … and enable them to own their homes,” Saudi Arabia’s finance minister Mohammed Al Jadaan said in a tweet.

“It also contributes to the development of the kingdom's economy by stimulating the residential and commercial [property] sector.”

The move is "positive and pragmatic", Tarek Fadlallah, chief executive of Nomura Asset Management Middle East said in a tweet. "It will provide a boost [to] sentiment and asset prices."

Saudi Arabia increased VAT on all goods and services from 5 per cent to 15 per cent on July 1 as part of measures to shore up its finances amid low oil prices and the coronavirus-induced economic slowdown.

The government will also bear the cost of the new Real Estate Transaction Tax for Saudi citizens purchasing their first home, provided that the amount does not exceed 1 million riyals ($266,442), according to the SPA.

“This contributes to achieving the kingdom’s vision of increasing housing ownership by Saudis to 70 per cent by 2030," the country’s housing minister, Majid Al-Hogail, said in a tweet.

During the second quarter of this year, the average cost of residential properties in Riyadh rose by 3.5 per cent from last year, while average rental rates fell by 1 per cent, according to a JLL report on Saudi Arabia's property sector.

In Jeddah, average house prices and rental rates fell by 6 per cent and 5 per cent, respectively. In Dammam, the average house price rose by 1.5 per cent while in Makkah, house prices and rental rates dropped 2 per cent and 11 per cent, respectively, JLL said in its July report.

"The decision to levy a 5 per cent property transaction tax, rather than apply 15 per cent VAT, should serve to support the market and is consistent with a long-term government policy of increasing home ownership," Chris Hobden, associate director and head of strategic consultancy at Chestertons Mena, told The National.