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Mon 23 Mar 2015 07:45 PM

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Saudi Arabia's cabinet approves tax on undeveloped land

Cabinet hopes policy will help to end a shortage of affordable homes and spur economic growth

Saudi Arabia's cabinet approves tax on undeveloped land
Cranes stand beside new high rise buildings under construction in the King Abdullah financial district of Riyadh, Saudi Arabia, on Monday, April 9, 2012. Saudi Arabias gross domestic product expanded 6.64 percent in the fourth quarter from a year ago, the kingdoms statistics agency said. (Bloomberg)

Saudi Arabia's cabinet on Monday approved a proposal to tax undeveloped land in urban areas, a policy which could help to end a shortage of affordable homes and spur economic growth.

The decision was the first major economic policy initiative announced by the government since King Salman took the throne in January, and may indicate he intends to take an active approach to reform of the economy.

The cabinet told the Council of Economic and Development Affairs, a new body created by Salman after his accession and chaired by one of his sons, to prepare a mechanism for the tax, saying the matter was urgent, state news agency SPA reported.

Much urban land in the kingdom is owned by wealthy individuals or companies who prefer holding it as a store of value, or trading it for speculative profits, to the process of developing it.

The tax is politically sensitive because it might hurt the interests of influential people in the kingdom, but it could force large amounts of the land into the market and spur home building activity.

The SPA report gave no details of the size of the tax, how it would be implemented, or a timetable for introducing it. The economic council's proposals will be passed to the Shura Council, a top advisory body, to be finalised.

The housing shortage is a major social problem in a nation that avoided the Arab Spring uprisings seen elsewhere in the region. People's difficulty in buying homes and affording rising rents has caused anger among Saudis on social media.

Earlier this month, King Salman said in a speech that providing housing to citizens was a priority for the government, along with tackling unemployment and corruption.

A day later he relieved housing minister Shuwaish Al Duwaihi of his position and appointed a minister of state to carry out those duties.

Duwaihi was quoted last year by local media as saying that 62 percent of the roughly 20 million Saudi citizens owned their own homes, but the International Monetary Fund has estimated that excluding people living in traditional housing, the ratio is 36 percent.

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