Fear of price plunge leads to land selloff

COST OF CAPITAL GAINS: The property selloff started last year when the Cabinet announced an annual tax of 2.5 percent on undeveloped urban land. (Reuters)

RIYADH: Banks, companies and the government have been selling large parts of their property portfolios because they expect a fall in prices of up to 50 percent in the wake of the Cabinet introducing a tax on unused property, say sources.
The property selloff started last year when the Cabinet announced an annual tax of 2.5 percent on undeveloped urban land designated for residential or commercial use.
This was seen as a major step in addressing a shortage of housing and developing the tax system. Prices have reportedly already dropped by 25 percent, according to some reports.
Academic and member of the Council of Saudi Chambers’ real estate committee Ahmad Bakerman said there was great uncertainty currently in the market, which has also been plagued by a lack of transparency.
He said it was difficult to determine which organizations and firms were selling their land, apart from the General Organization for Social Insurance (GOSI), which had announced it had done so, a local publication reported Friday.
He said banks do not own property, but hold mortgages. If people do not pay their loans, the banks are entitled to sell the property. He said there were some parties moving to sell their land because of the price rout expected to take place, and placing their money elsewhere.
He said it was probably not wise for anyone to sell their land in the current climate, which has been characterized by considerable stagnation, too much supply and little demand.
Fadel Al-Boenin, a banker, said banks have a right to sell the property of those who fail to pay their mortgages. He confirmed that many banks were looking at selling repossessed property before the expected price fall.
He said falling prices are a reality, which would have a negative impact on investors. Those who fail to pay their loans only make up 1.5 percent of people with mortgages. He said the Finance Ministry and GOSI had sold some of their land.
Real estate expert Abdullah Al-Maliki said most banks and government agencies started selling their properties during the second half of 2015. The tax on unused property would see many sell their holdings. A drop of 50 percent would likely take place, which was simply a correction that would bring prices to where they logically should be, he said.