Saudi Arabia has lowered the transaction costs of buying property as it tries to revitalise its economy which has been battered by a plunge in oil prices due to the coronavirus pandemic.
Its ruler issued an order on Friday exempting real estate deals from a 15 percent value added tax (VAT) and instead imposed a new 5 percent tax on transactions.
The finance minister said on Twitter that the order, issued on state media, aimed to support Saudi citizens who want to buy homes.
The world’s largest oil exporter is facing a deep recession, with the economy shrinking by 7 percent in the second quarter and unemployment hitting a record high of 15.4 percent.
The government had in July tripled VAT to 15 percent to boost non-oil revenues, but the move proved unpopular.
“The royal order aims to support citizens and ease their burden … and enable them to own homes, and helps develop the kingdom’s economy by spurring the residential and commercial property sector,” Finance Minister Mohammed al-Jadaan tweeted.
Oil rents – the profits the government makes in producing crude – made up 28.7 percent of Saudi Arabia’s economy in 2018, the highest proportion among the world’s 20 largest economies, making it one of the most oil-dependent nations.
Oil prices are down 41 percent from a high of $68.91 per barrel in early January before they plunged as the virus spread globally. At $40.53 per barrel, oil prices are far below the $76.10 level the International Monetary Fund estimates that Saudi Arabia needs to meet its annual spending.
De facto ruler Crown Prince Mohammed bin Salman has launched an ambitious plan to diversify the economy away from oil and create jobs for millions of Saudis. The government has said it is committed to the plan but that programmes would undergo “structural improvements” and be reprioritised to spur growth.
The royal order said the government would bear the cost of the new Real Estate Transaction Tax “for up to 1 million riyals ($266,616)” for Saudi citizens purchasing their first home.
The housing minister said the move would help achieve a target of boosting housing ownership among Saudis to 70 percent by 2030 in a country with an overwhelmingly young population.
Saudi Arabia plans to cut spending by 7.5 percent in next year’s budget, according to a preliminary statement that forecast a budget deficit equivalent to 12 percent of gross domestic product for 2020 and a 5.1 percent deficit next year.