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Sat 28 Mar 2015 02:13 AM

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It's time for Saudi Arabia to finally make good on housing promises

Instead of implementing a counterproductive property tax, the housing ministry should work on cutting through the vast amount of red tape, says Ed Attwood

It's time for Saudi Arabia to finally make good on housing promises

It has been an ignominious few years for Shuwaish Al Duwaihi. In 2011, he was appointed Saudi Arabia’s first housing minister, just after then-King Abdullah announced that building more homes was the number-one priority for his government. Coming at a time of extreme regional instability as the Arab Spring revolutions rolled their way through the Middle East, the fact that Saudi Arabia saw housing as a bigger concern than either jobs or foreign policy spoke volumes about its need to keep a growing and youthful population happy. Of the social spending packages unveiled by King Abdullah at the time, more than half ($67bn) went on home-building.

To say the results have been disappointing would be an understatement. Of the half a million new homes that have been promised, it is unclear exactly how many — if any — have actually been built.

Earlier this month, almost exactly four years since he took the job, Al Duwaihi was sacked by King Salman, in one of the new monarch’s first moves after taking the throne. From what I hear, the minister asked for more time to complete his brief, but this plea was ignored. Essam Bin Saad Bin Saeed — who was appointed as a minister of state (without portfolio) in December last year after serving as the head of the Bureau of Experts — now takes on what has to be one of the toughest jobs in the Gulf.

In another move reinforcing the importance of the issue, the Saudi cabinet requested the Council of Economic and Development Affairs to prepare for a mechanism to tax the owners of undeveloped land within urban city limits. Ironically, this had been a plan backed by Al Duwaihi, who had been unable to push it through.

The announcement sent the Saudi stock market lower, as investors fretted over the possibility that the country’s biggest developers would be hit by the new tax. This seems a bit short-sighted.

The idea of a property tax is the right one, but more clarity is needed to understand exactly who will be affected. It should target wealthy landowners, who have held on to vast tracts of some of the kingdom’s prime real estate, and have seen their own already considerable fortunes skyrocket as the cost of land has soared. These individuals have no intention of building homes, and are only concerned with lining their own pockets.

The tax should not, however, target Saudi Arabia’s developers. After all, these are the companies that are actually going to build the houses the country so desperately needs. Instead of implementing a counterproductive tax, the housing ministry should work on cutting through the vast amount of red tape that prevents projects from being signed off.

From zoning approvals to the time it takes to get infrastructure and superstructure licences agreed, developers are fighting a losing battle in their bid to fulfil the hugely ambitious targets set by the Saudi authorities.

Given that the government is clearly prepared to spend heavily on housing, it should also consider providing financial support — perhaps in the form of interest-free loans — for developers who wish to build affordable homes.

Even with the best will in the world, it will take time for all these new properties to come onto the market, and real estate prices are such that few Saudis — especially those from the younger generations — will be able to pay for them.

With everything else that is going on the region, it is now more important than it has ever been for Saudi Arabia to finally put its housing policy in order. Another four years of stagnation is a luxury that the kingdom simply cannot afford.

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